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The Monetary Policy Regime and Banking Spreads in Barbados

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  • Laura Valderrama
  • Wendell A. Samuel
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    Abstract

    The paper analyzes the determinants of banking spreads in Barbados, with a view to identifying the role of the monetary policy regime in explaining high spreads. The paper finds that interest rate spreads for Barbados are higher than would be suggested by its macroeconomic performance. Banking concentration and bank-specific variables, including bank size and provisions for nonperforming loans, do not have an important role in explaining variations in bank spreads. Rather, it appears that monetary policy variables, such as reserve requirements and capital controls, are the most important determinants of spreads.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/211.

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    Length: 24
    Date of creation: 01 Sep 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/211

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    Related research

    Keywords: Interest rates; Economic conditions;

    This paper has been announced in the following NEP Reports:

    References

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    1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, vol. 13(2), pages 379-408, May.
    2. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Bank concentration and crises," Policy Research Working Paper Series 3041, The World Bank.
    3. International Monetary Fund, 2005. "Quantitative Assessment of a Financial System--Barbados," IMF Working Papers 05/76, International Monetary Fund.
    4. Ephraim W. Chirwa & Montfort Mlachila, 2004. "Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi," IMF Staff Papers, Palgrave Macmillan, vol. 51(1), pages 5.
    5. R. Gaston Gelos, 2009. "Banking Spreads In Latin America," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 796-814, October.
    6. Amadou N. R. Sy, 2001. "Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals," IMF Working Papers 01/165, International Monetary Fund.
    7. 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.
    8. Simon Gray, Glenn Hoggarth and Joanna Place, 2000. "Introduction to Monetary Operations - Revised, 2nd Edition," Handbooks, Centre for Central Banking Studies, Bank of England, number 10, October.
    9. Saunders, Anthony & Schumacher, Liliana, 2000. "The determinants of bank interest rate margins: an international study," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 813-832, December.
    10. Claessens, Stijn & Laeven, Luc, 2003. "What drives bank competition? some international evidence," Policy Research Working Paper Series 3113, The World Bank.
    11. Thorsten Beck & Ross Levine, 2004. "Legal Institutions and Financial Development," NBER Working Papers 10417, National Bureau of Economic Research, Inc.
    12. Ho, Thomas S. Y. & Saunders, Anthony, 1981. "The Determinants of Bank Interest Margins: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 581-600, November.
    13. Timothy H. Hannan & J. Nellie Liang, 1993. "Bank commercial lending and the influence of thrift competition," Finance and Economics Discussion Series 93-39, Board of Governors of the Federal Reserve System (U.S.).
    14. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 443-56, June.
    15. Ruby Randall, 1998. "Interest Rate Spreads in the Eastern Caribbean," IMF Working Papers 98/59, International Monetary Fund.
    16. S. Illeris & G. Akehurst, 2001. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 21(1), pages 1-4, January.
    17. Winston Moore & Roland Craigwell, 2002. "Market Power and Interest Rate Spreads in the Caribbean," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(4), pages 391-405.
    18. Nobuhiro Kiyotaki & John Moore, 2005. "Financial Deepening," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 701-713, 04/05.
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    Cited by:
    1. M. Idrees Khawaja & Musleh-Ud Din, 2007. "Determinants of Interest Spread in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(2), pages 129-143.
    2. Idrees Khawaja, 2011. "Interest Margins and Banks’ Asset-Liability Composition," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 255-270, September.
    3. Guy, Kester & Lowe, Shane, 2012. "Tracing the Liquidity Effects on Bank Stability in Barbados," MPRA Paper 52205, University Library of Munich, Germany.

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