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Market Power and Interest Rate Spreads in the Caribbean

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.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/02692170210161138
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Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 16 (2002)
Issue (Month): 4 ()
Pages: 391-405

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Handle: RePEc:taf:irapec:v:16:y:2002:i:4:p:391-405
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  1. 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.
  2. 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.
  3. 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.
  4. Gilbert, R Alton, 1984. "Bank Market Structure and Competition: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 617-44, November.
  5. Shaffer, Sherrill, 1989. "Competition in the U.S. banking industry," Economics Letters, Elsevier, vol. 29(4), pages 321-323.
  6. Sherrill Shaffer, 1990. "A test of competition in Canadian banking," Working Papers 90-18, Federal Reserve Bank of Philadelphia.
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