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Risk, Concentration and Market Power in the Banking Industry: Evidence from the Colombian System (1997-2006)

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  • Jorge Tovar

    ()

  • Christian Jaramillo

    ()

  • Carlos Hernández

Abstract

This paper examines the relationship between risk, concentration and the exercise of market power by banking institutions. We use monthly balance-sheet and interest rate data for the Colombian banking system from 1997 to 2006. The evidence shows that, in the face of high risk, banks transfer a larger share of risk to customers through higher intermediation margins. The result suggests that systemic risk acts as a collusion" device for banks: while high concentration is not enough to have collusion, the true effects of high market concentration on interest rates´ mark-ups emerge when the system is under stress."

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File URL: http://economia.uniandes.edu.co/publicaciones/documentocede2007-27.pdf
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Bibliographic Info

Paper provided by UNIVERSIDAD DE LOS ANDES-CEDE in its series DOCUMENTOS CEDE with number 004385.

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Length: 36
Date of creation: 14 Nov 2007
Date of revision:
Handle: RePEc:col:000089:004385

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Keywords: Banking; market power; risk; concentration; intermediation margins;

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  1. Brock, Philip L. & Rojas Suarez, Liliana, 2000. "Understanding the behavior of bank spreads in Latin America," Journal of Development Economics, Elsevier, vol. 63(1), pages 113-134, October.
  2. Alli Nathan & Edwin H. Neave, 1989. "Competition and Contestability in Canada's Financial System: Empirical Results," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 576-94, August.
  3. Prager, Robin A & Hannan, Timothy H, 1998. "Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence from the Banking Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 433-52, December.
  4. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 443-56, June.
  5. Alejandro BADEL FLOREZ, 2002. "Sistema Bancario Colombiano: ¿Somos eficientes a nivel internacional?," ARCHIVOS DE ECONOMÍA 003500, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  6. Bikker, Jacob A. & Haaf, Katharina, 2002. "Competition, concentration and their relationship: An empirical analysis of the banking industry," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2191-2214, November.
  7. Dairo Estrada, 2005. "Efectos De Las Fusiones Sobre El Mercado Financiero Colombiano," BORRADORES DE ECONOMIA 002424, BANCO DE LA REPÚBLICA.
  8. Gianni De Nicolo, 2000. "Size, charter value and risk in banking: an international perspective," International Finance Discussion Papers 689, Board of Governors of the Federal Reserve System (U.S.).
  9. Dairo Estrada, . "Efectos de las fusiones sobre el mercado financiero colombiano," Borradores de Economia 329, Banco de la Republica de Colombia.
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Cited by:
  1. Simpasa, Anthony, 2010. "Characterising market power and its determinants in the Zambian banking indudstry," MPRA Paper 27232, University Library of Munich, Germany.

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