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An Industrial Organization Analysis for the Colombian Banking System

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  • Sandra Rozo

    ()

  • Diego Vásquez

    ()

  • Dairo Estrada

    ()

Abstract

This paper presents two versions of a spatial competition model forthe banking sector. The first version, describes a framework that fol-lows closely Salop´s spatial competition model. This version is modi-fied in the second part by introducing the loan market and default riskprobabilities for credit. Both theoretical approaches are analyzed em-pirically for the Colombian data,covering the period 1996-2005. Ourresults allow us to construct a deviation of the observed number ofbranches from an optimal number of branches for the banking systemthroughout the period of study. The deviation indicates that in thelast years the number of branches is below the optimum which sug-gest that political measures should focus in increasing the number ofbranches in the country. Additionally, we found empirical evidenceof market separability between the loan and deposit markets, and fi-nally, we were able to determine the signs of the relations betweencredit collateral, payment probability and interest rates.

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Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 005001.

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Length: 42
Date of creation: 26 Aug 2008
Date of revision:
Handle: RePEc:col:000094:005001

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Keywords: Banking; Location; Competition; Colombia.;

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  1. Hirofumi Uchida & Yoshiro Tsutsui, 2002. "Has Competition in the Japanese Banking Sector Improved?," Discussion Papers in Economics and Business 02-09-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Sep 2003.
  2. Biorn,E., 1999. "Estimating regression systems from unbalanced panel data : a stepwise maximum likelihood procedure," Memorandum 20/1999, Oslo University, Department of Economics.
  3. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, December.
  4. Shaffer, Sherrill, 1993. "A Test of Competition in Canadian Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 49-61, February.
  5. Adolfo Barajas & Roberto Steiner & Natalia Salazar, 1999. "Interest Spreads in Banking in Colombia, 1974-96," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 4.
  6. Dairo Estrada, . "Efectos de las fusiones sobre el mercado financiero colombiano," Borradores de Economia 329, Banco de la Republica de Colombia.
  7. Moshe Kim & Ana Lozano-Vivas & Antonio Morales, 2007. "Multistrategic Spatial Competition in Banking," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 14(3), pages 351-366.
  8. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December.
  9. Pita Barros, Pedro, 1999. "Multimarket competition in banking, with an example from the Portuguese market," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 335-352, April.
  10. Neven, Damien & Roller, Lars-Hendrik, 1999. "An aggregate structural model of competition in the European banking industry," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 1059-1074, October.
  11. Yeyati, Eduardo Levy & Micco, Alejandro, 2007. "Concentration and foreign penetration in Latin American banking sectors: Impact on competition and risk," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1633-1647, June.
  12. Shaffer, Sherrill, 1989. "Competition in the U.S. banking industry," Economics Letters, Elsevier, vol. 29(4), pages 321-323.
  13. Berg, Sigbjorn Atle & Kim, Moshe, 1994. "Oligopolistic Interdependence and the Structure of Production in Banking: An Empirical Evaluation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(2), pages 309-22, May.
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