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Interest Spreads in Banking in Colombia, 1974-96

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Listed:
  • Adolfo Barajas

    (International Monetary Fund)

  • Roberto Steiner

    (International Monetary Fund)

  • Natalia Salazar

    (International Monetary Fund)

Abstract

This paper examines the determinants of the high intermediation spread observed in the Colombian banking sector for over two decades. A reduced-form equation is estimated on the basis of a bank profit maximization model that permits a decomposition into operational costs, financial taxation, market power, and loan quality. Although the average spread did not change between the preliberalization (1974-88) and postliberalization (1991-96) periods, its composition did, with market power being significantly reduced and the responsiveness to loan quality increased. Colombia's progress in reducing operational costs and financial taxation and improving loan quality will determine whether it can narrow the spread. Copyright 1999, International Monetary Fund

Suggested Citation

  • Adolfo Barajas & Roberto Steiner & Natalia Salazar, 1999. "Interest Spreads in Banking in Colombia, 1974-96," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-4.
  • Handle: RePEc:pal:imfstp:v:46:y:1999:i:2:p:4
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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