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The Determinants of Bank Interest Spread in Brazil

  • Tarsila Segalla Afanasieff
  • Priscilla Maria Villa Lhacer
  • Márcio I. Nakane
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    The behavior of bank interest spreads in Brazil reveal two stylized facts. First, a remarkable fall in the average rates since early 1999. Second, a strong and persistent dispersion of rates across banks. Such stylized facts suggest that both the time series and the cross section dimensions are important elements to understand the trend of the bank interest spread in the country. This paper makes use of panel data techniques to uncover the main determinants of the bank interest spreads in Brazil. A question that the paper aims to address is whether macro or microeconomic factors are the most relevant ones affecting the behavior of such rates. A two-step approach due to Ho and Saunders (1981) is employed to measure the relative relevance of the micro and the macro elements. The roles played by the inflation rate; risk premium, economic activity, required reserves (all macroeconomic factors) and CAMEL-type indicators (microeconomic factors) are highlighted. The results suggest that macroeconomic variables are the most relevant factors to explain the behavior of bank interest spread in Brazil.

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    File URL: http://www.bcb.gov.br/pec/wps/ingl/wps46.pdf
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    Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 46.

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    Date of creation: Aug 2002
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    Publication status: Published in Money Affairs, Vol. 15, no. 2 (Jul-Dec 2002): 183-207.
    Handle: RePEc:bcb:wpaper:46
    Contact details of provider: Web page: http://www.bcb.gov.br/?english

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    1. Francisco Marcos Rodrigues Figueiredo, 2001. "Evaluating Core Inflation Measures for Brazil," Working Papers Series 14, Central Bank of Brazil, Research Department.
    2. Benjamin Miranda Tabak & Sandro Canesso de Andrade, 2001. "Testing the Expectations Hypothesis in the Brazilian Term Structure of Interest Rates," Working Papers Series 30, Central Bank of Brazil, Research Department.
    3. Mauro Costa Miranda, 2001. "Crises Cambiais e Ataques Especulativos no Brasil," Working Papers Series 32, Central Bank of Brazil, Research Department.
    4. Marcelle Chauvet, 2000. "Leading Indicators of Inflation for Brazil," Working Papers Series 7, Central Bank of Brazil, Research Department.
    5. Marco Antonio Bonomo & Ricardo D. Brito, 2001. "Regras Monetárias e Dinâmica Macroeconômica no Brasil: Uma Abordagem de Expectativas Racionais," Working Papers Series 28, Central Bank of Brazil, Research Department.
    6. Pedro H. Albuquerque, 2001. "Os Impactos Econômicos da CPMF: Teoria e Evidência," Working Papers Series 21, Central Bank of Brazil, Research Department.
    7. Paulo Coutinho & Benjamin Miranda Tabak, 2001. "Decentralized Portfolio Management," Working Papers Series 22, Central Bank of Brazil, Research Department.
    8. Marcelo Kfoury Muinhos & Sérgio Afonso Lago Alves & Gil Riella, 2002. "Modelo Estrutural com Setor Externo: Endogenização do Prêmio de Risco e do Câmbio," Working Papers Series 42, Central Bank of Brazil, Research Department.
    9. Victorio Y. T. Chu & Márcio I. Nakane, 2001. "Credit Channel without the LM Curve," Working Papers Series 20, Central Bank of Brazil, Research Department.
    10. Pedro H. Albuquerque, 2000. "An Information Theory Approach to the Aggregation of Log-Linear Models," Working Papers Series 4, Central Bank of Brazil, Research Department.
    11. Sandro Canesso de Andrade & Benjamin Miranda Tabak, 2001. "Is it Worth Tracking Dollar/Real Implied Volatility?," Working Papers Series 15, Central Bank of Brazil, Research Department.
    12. Francisco Marcos R. Figueiredo & Roberta Blass Staub, 2001. "Algumas Considerações Sobre a Sazonalidade no IPCA," Working Papers Series 31, Central Bank of Brazil, Research Department.
    13. Emanuel-Werner Kohlscheen, 2000. "Estimating Exchange Market Pressure and Intervention Activity," Working Papers Series 9, Central Bank of Brazil, Research Department.
    14. Eduardo Lundberg, 2000. "Monetary Policy and Banking Supervision Functions on the Central Bank," Working Papers Series 2, Central Bank of Brazil, Research Department.
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