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Market Power and Interest Rate Spreads in the Caribbean

Author

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  • Winston Moore
  • Roland Craigwell

Abstract

This paper investigates the determinants of the high bank spreads observed in the Caribbean over the financially liberalised period of the 1990s. A theoretical model is formulated and tested using panel data. Among other factors, market power is found to be one of the main influences on these large spreads. A major conclusion of the paper is that to reduce interest rate spreads, alternatives to commercial banks' loans should be encouraged, and the recent move to impose monetary regulations on non-banks be discouraged.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:irapec:v:16:y:2002:i:4:p:391-405
    DOI: 10.1080/02692170210161138
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    References listed on IDEAS

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    1. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    2. Shaffer, Sherrill, 1993. "A Test of Competition in Canadian Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 49-61, February.
    3. Anston Rambarran, 2000. "Bank Competition and Contestability in Trinidad and Tobago: a Case for Further Commitments Under the GATS," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 17-35, January-J.
    4. 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.
    5. Gilbert, R Alton, 1984. "Bank Market Structure and Competition: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 617-644, November.
    6. Shaffer, Sherrill, 1989. "Competition in the U.S. banking industry," Economics Letters, Elsevier, vol. 29(4), pages 321-323.
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    Citations

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    Cited by:

    1. Cecilia Maigua & Gekara Mouni, 2016. "Influence of Interest Rates Determinants on the Performance of Commercial Banks in Kenya," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(2), pages 121-133, April.
    2. Khemraj, Tarron, 2010. "The simple analytics of oligopoly banking in developing economies," MPRA Paper 22266, University Library of Munich, Germany.
    3. Khemraj, Tarron & Pasha, Sukrishnalall, 2011. "Monetary sterilization and dual nominal anchors: some Caribbean examples," MPRA Paper 34503, University Library of Munich, Germany.
    4. Birchwood, Anthony & Brei, Michael & Noel, Dorian M., 2017. "Interest margins and bank regulation in Central America and the Caribbean," Journal of Banking & Finance, Elsevier, vol. 85(C), pages 56-68.
    5. Leonardo VERA & Luis ZAMBRANO-SEQUÍN & Andreas FAUST, 2007. "The Efficiency-Stability Trade-Off: The Case Of High Interest Rate Spreads In Venezuela," The Developing Economies, Institute of Developing Economies, vol. 45(1), pages 1-26.
    6. Tarron Khemraj, 2007. "What does excess bank liquidity say about the loan market in Less Developed Countries?," Working Papers 60, United Nations, Department of Economics and Social Affairs.
    7. Khemraj, Tarron & Hinova, Diana, 2011. "Elected Oligarchy and Economic Underdevelopment: The Case of Guyana," MPRA Paper 29733, University Library of Munich, Germany.
    8. Khan, Mehwish Aziz & Kayani, Ferheen & Javid, Attiya Yasmin, 2011. "Effect of Mergers and Acquisitions on Market Concentration and Interest Spread," MPRA Paper 37311, University Library of Munich, Germany.
    9. Mamingi, Nlandu & Boamah, Daniel O. & Jackman, Mahalia N., 2011. "Bahamas and Barbados: empirical evidence of interest rate pass-through," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    10. Fazurin Jamaludin & Vladimir Klyuev & Anuk Serechetapongse, 2015. "What Drives Interest Rate Spreads in Pacific Island Countries? An Empirical Investigation," IMF Working Papers 15/96, International Monetary Fund.
    11. Laura Valderrama & Wendell A. Samuel, 2006. "The Monetary Policy Regime and Banking Spreads in Barbados," IMF Working Papers 06/211, International Monetary Fund.
    12. Simpasa, Anthony, 2010. "Characterising market power and its determinants in the Zambian banking indudstry," MPRA Paper 27232, University Library of Munich, Germany.
    13. GRENADE, Kari & MOORE, Winston, 2008. "Co-Movements Between Foreign And Domestic Interest Rates In A Fixed Exchange Rate Regime: The Case Of The Eccu And The Us," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(1), pages 119-130.
    14. repec:dau:papers:123456789/3369 is not listed on IDEAS
    15. Koffie Ben Nassar & Edder Martinez & Anabel Pineda, 2014. "Determinants of Banks' Net Interest Margins in Honduras," IMF Working Papers 14/163, International Monetary Fund.
    16. repec:sgm:jbfeuw:v:1:y:2017:i:7:p:5-27 is not listed on IDEAS

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