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Interest rate dispersion in deposit and loan markets

Author

Listed:
  • Alfredo Martín-Oliver

    (Banco de España)

  • Vicente Salas-Fumás

    (Banco de España
    Universidad de Zaragoza)

  • Jesús Saurina

    (Banco de España)

Abstract

This paper investigates the existence and determinants of interest rates dispersion in loans and deposits of Spanish banks. A unique feature of the research is that it covers a whole industry (thirty products and two hundred banks) from 1989 to 2003. We find that: i) interest rates dispersion is a persistent phenomena in loans and deposits markets; ii) the differences across products in the observed dispersion can be explained as a function of variables that affect the private net benefits of consumers' investment in information including search costs (frequency and volume of transactions); iii) interest rate dispersion is more sensible to product specific inflation than to changes in the interest rate of the economy; iv) regulation of standards of transparency by the Spanish Central Bank has been effective in reducing interest rate dispersion.

Suggested Citation

  • Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesús Saurina, 2005. "Interest rate dispersion in deposit and loan markets," Working Papers 0506, Banco de España.
    • Handle: RePEc:bde:wpaper:0506
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/05/Fic/dt0506e.pdf
    File Function: First version, March 2005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Casu, Barbara & Girardone, Claudia, 2010. "Integration and efficiency convergence in EU banking markets," Omega, Elsevier, vol. 38(5), pages 260-267, October.
    2. Kok, Christoffer & Lichtenberger, Jung-Duk, 2007. "Mortgage interest rate dispersion in the euro area," Working Paper Series 733, European Central Bank.
    3. Alfredo Martõn-Oliver & Vicente Salas-Fum¡S & Jesus Saurina, 2007. "A Test of the Law of One Price in Retail Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2021-2040, December.
    4. Priyanshi Gupta & Sanjay Sehgal, 2020. "Convergence of retail banking interest rates to households in euro area: time-varying measurement and determinants," International Economics and Economic Policy, Springer, vol. 17(1), pages 25-65, February.
    5. Raquel Lago-González & Vicente Salas-Fumás, 2005. "Market power and bank interest rate adjustments," Working Papers 0539, Banco de España.
    6. Pablo Filippi F. & Patricio Hevia G. & César Vásquez C., 2015. "Análisis de Microdatos de las Tasas de Interés Comerciales por Sector Económico," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 18(3), pages 104-129, December.

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    More about this item

    Keywords

    price dispersion; search costs; information differentiation; inflation; transparency regulation;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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