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Financial stability, competition and efficiency in Latin American and Caribbean banking

Author

Listed:
  • Adnan Kasman

    (Dokuz Eylul University)

  • Oscar Carvallo

    (Central Bank of Venezuela)

Abstract

Using a sample of 272 commercial banks from fifteen Latin American countries for the period 2001-2008, we estimate cost and revenue efficiency scores, financial stability scores (Z-scores) and competition scores (Lerner indexes and Boone indicators) at the bank level. The Granger causality technique in dynamic panels is used to establish dynamic relationships among these variables. We find evidence that strongly supports the “quite life” hypothesis, while we also find partial support for causality running in the opposite direction. Moreover, the results suggest that more competition is conducive to greater financial stability (when the revenue efficiency score is used). Banks seem to achieve market power through better efficiency, leverage and earning ability. As size and complexity increase, however, agency problems and increasing risk-taking might start gaining momentum, generating inefficiency and fragility.

Suggested Citation

  • Adnan Kasman & Oscar Carvallo, 2014. "Financial stability, competition and efficiency in Latin American and Caribbean banking," Journal of Applied Economics, Universidad del CEMA, vol. 17, pages 301-324, November.
  • Handle: RePEc:cem:jaecon:v:17:y:2014:n:2:p:301-324
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    File URL: https://ucema.edu.ar/publicaciones/download/volume17/kasman.pdf
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    Citations

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    Cited by:

    1. repec:ris:ecoint:0824 is not listed on IDEAS
    2. repec:rfe:zbefri:v:35:y:2017:i:2:p:459-485 is not listed on IDEAS
    3. Carvallo, Oscar & Kasman, Adnan, 2017. "Convergence in bank performance: Evidence from Latin American banking," The North American Journal of Economics and Finance, Elsevier, vol. 39(C), pages 127-142.
    4. Thi My Phan, Hanh & Daly, Kevin & Akhter, Selim, 2016. "Bank efficiency in emerging Asian countries," Research in International Business and Finance, Elsevier, vol. 38(C), pages 517-530.
    5. repec:eee:jbfina:v:87:y:2018:i:c:p:40-48 is not listed on IDEAS
    6. repec:eee:glofin:v:35:y:2018:i:c:p:223-236 is not listed on IDEAS
    7. repec:eee:jebusi:v:96:y:2018:i:c:p:15-41 is not listed on IDEAS
    8. repec:eee:riibaf:v:41:y:2017:i:c:p:260-279 is not listed on IDEAS
    9. Carvallo, Oscar & Kasman, Adnan & Kontbay-Busun, Sine, 2015. "The Latin American bank capital buffers and business cycle: Are they pro-cyclical?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 148-160.

    More about this item

    Keywords

    financial stability; competition; efficiency; Latin American banking;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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