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How foreign participation and market concentration impact bank spreads : evidence from Latin America

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  • Martinez Peria, Maria Soledad
  • Mody, Ashoka

Abstract

Increasing foreign participation and high concentration levels characterize the recent evolution of banking sectors'market structures in developing countries. The authors analyze the impact of these factors on Latin American bank spreads during the late 1990s. Their results suggest that foreign banks were able to charge lower spreads relative to domestic banks. This was more so for de novo foreign banks than for those that entered through acquisitions. The overall level of foreign bank participation seemed to influence spreads indirectly, primarily through its effect on administrative costs. Bank concentration was positively and directly related to both higher spreads and costs.

Suggested Citation

  • Martinez Peria, Maria Soledad & Mody, Ashoka, 2004. "How foreign participation and market concentration impact bank spreads : evidence from Latin America," Policy Research Working Paper Series 3210, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3210
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    References listed on IDEAS

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    More about this item

    Keywords

    Payment Systems&Infrastructure; Banks&Banking Reform; Decentralization; Financial Intermediation; Banking Law; Financial Intermediation; Banking Law; Municipal Financial Management; Financial Crisis Management&Restructuring; Banks&Banking Reform;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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