The determinants of bank margins revisited: A note on the effects of diversification
AbstractMost of the theoretical and empirical literature on bank margins has dealt solely with interest margins. Applying the seminal Ho-Saunders model (JFQA, 1981) to a multi-output framework, we show that the relationship between bank margins and market power (controlling for risk) varies significantly across bank specializations. Using a set of both accounting margins and New Empirical Industrial Organization (NEIO) margins, we find that market power rises significantly with output diversification towards non-traditional activities. These results contribute to explain the paradoxical coexistence of decreasing interest margins and higher market power found in previous studies.
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Bibliographic InfoPaper provided by Department of Economic Theory and Economic History of the University of Granada. in its series ThE Papers with number 05/11.
Length: 19 pages
Date of creation: 01 Jun 2005
Date of revision:
bank margins; specialization; market structure.;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D40 - Microeconomics - - Market Structure and Pricing - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-05 (All new papers)
- NEP-COM-2005-06-05 (Industrial Competition)
- NEP-FIN-2005-06-05 (Finance)
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