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From proximity to distant banking: Spanish banks in the EMU

Author

Listed:
  • Alfredo Martín-Oliver

    () (Banco de España)

Abstract

This paper examines the nature of competition in the Spanish banking industry during the years before and after Spain joined the European Monetary Union (EMU). The paper models competition in a product-differentiated market where banks choose from a list of price (interest rates of loans and deposits) and non-price variables (branches, advertising, IT capital). The empirically estimated demand and cost functions are used to simulate the values of the endogenous variables of the representative bank in response to the historically low official interest rates of the post Euro period. The results show that there has been a convergence in the levels of price competition in the loans and deposits markets during the post Euro period. Additionally, the paper finds that branches have lost weight in the mix of competition variables in benefit of advertising and IT capital. This is interpreted as evidence that traditional proximity banking is evolving towards distant banking. Finally, the simulation results highlight the high imbalances between loans and deposits for the representative bank in the regime of low official interest rates of the Euro zone.

Suggested Citation

  • Alfredo Martín-Oliver, 2010. "From proximity to distant banking: Spanish banks in the EMU," Working Papers 1008, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1008
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/10/Fic/dt1008e.pdf
    File Function: First version, March 2010
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    Cited by:

    1. Alfredo Martin-Oliver & Sonia Ruano & Vicente Salas-Fumas, 2013. "Banks' Equity Capital Frictions, Capital Ratios, and Interest Rates: Evidence from Spanish Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 183-225, March.

    More about this item

    Keywords

    banking competition; product differentiation; intangibles; simulation;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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