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Intermediation Spread, Bank Supervision, and Financial Stability

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  • Süheyla Özyıldırım

    (Faculty of Business Administration, Bilkent University, 06800 Bilkent Ankara, Turkey)

Abstract

This paper models the effect of bank competition and deposit insurance premiums on the spread between lending and deposit rates. In developing economies, low spreads do not always indicate bank efficiency; they may be the result of high risk taking. This paper shows that imposing upper and lower limits on banks' spreads and adjusting deposit insurance premiums when violation of these limits occurs leads to a more stable but relatively large intermediation costs. In developing economies, such an outcome would be considered more desirable because it insulates existing financial intermediaries and investors against macroeconomic disturbances.

Suggested Citation

  • Süheyla Özyıldırım, 2010. "Intermediation Spread, Bank Supervision, and Financial Stability," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 13(04), pages 517-537.
    • Handle: RePEc:wsi:rpbfmp:v:13:y:2010:i:04:n:s0219091510002050
    DOI: 10.1142/S0219091510002050
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    References listed on IDEAS

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    4. International Monetary Fund, 2007. "Italy—Assessing Competition and Efficiency in the Banking System," IMF Working Papers 2007/026, International Monetary Fund.
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    More about this item

    Keywords

    Intermediation spread; deposit market; insurance premium; banking; financial stability;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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