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All Banks Great, Small, and Global: Loan pricing and foreign competition

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  • Beatriz de Blas
  • Katheryn Niles Russ

Abstract

Can allowing foreign participation in the banking sector increase real output, despite the imperfectly competitive nature of the industry? Using a new model of heterogeneous, imperfectly competitive lenders and a simple search process, we show how endogenous markups (the net interest margin commonly used to proxy lending-to-deposit rate spreads) can increase with FDI while the rates banks charge to borrowers are largely unchanged or actually fall. We contrast the competitive effects from cross-border bank takeovers with those of cross-border lending by banks located overseas, which in most cases reduces markups and interest rates. Both policies can increase aggregate output and generate permanent current account imbalances.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16029.

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Date of creation: May 2010
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Publication status: published as de Blas, Beatriz & Russ, Katheryn Niles, 2013. "All banks great, small, and global: Loan pricing and foreign competition," International Review of Economics & Finance, Elsevier, vol. 26(C), pages 4-24.
Handle: RePEc:nbr:nberwo:16029

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Cited by:
  1. Hoxha, Indrit, 2013. "The market structure of the banking sector and financially dependent manufacturing sectors," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 432-444.
  2. Fabio Ghironi & Viktors Stebunovs, 2010. "The Domestic and International Effects of Interstate U.S. Banking," Boston College Working Papers in Economics 765, Boston College Department of Economics.
  3. Claudia M. Buch & Linda S. Goldberg, 2014. "International Banking and Liquidity Risk Transmission: Lessons from Across Countries," NBER Working Papers 20286, National Bureau of Economic Research, Inc.
  4. Kerl, Cornelia & Niepmann, Friederike, 2014. "What determines the composition of international bank flows?," Staff Reports 681, Federal Reserve Bank of New York.
  5. Franziska Bremus, 2011. "Financial Integration and Macroeconomic Stability: What Role for Large Banks?," Discussion Papers of DIW Berlin 1178, DIW Berlin, German Institute for Economic Research.
  6. Franziska Bremus, 2013. "Cross-Border Banking, Bank Market Structures and Market Power: Theory and Cross-Country Evidence," Discussion Papers of DIW Berlin 1344, DIW Berlin, German Institute for Economic Research.
  7. Diego Valderrama & Katheryn N. Russ, . "A Theory of Banks, Bonds, and the Distribution of Firm Size," Working Papers 915, University of California, Davis, Department of Economics.
  8. Niepmann, Friederike, 2013. "Banking across borders," Discussion Papers 19/2013, Deutsche Bundesbank, Research Centre.
  9. Philip R. Lane, 2008. "EMU and Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp272, IIIS.
  10. Galema, Rients & Koetter, Michael & Liesegang, Caroline, 2013. "Cost leadership and bank internationalization," Discussion Papers 57/2013, Deutsche Bundesbank, Research Centre.
  11. Friederike Niepmann, 2013. "Banking across borders with heterogeneous banks," Staff Reports 609, Federal Reserve Bank of New York.

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