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The impact of interbank and public debt markets on the competition for bank deposits

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  • Carlos Pérez Montes

    (Banco de España)

Abstract

The growth in the interest rates paid on Spanish public debt since 2008 and the impairment of the interbank market have generated concerns about their effects on competition for bank deposits in Spain. I combine a nested logit model of bank deposit supply with a structural model of competition to measure the impact of the reference interest rates on public debt and interbank markets on the returns on deposits and funding policy of Spanish banks in the period 2003-2010. The interbank rate is found to be more closely correlated with the return on deposits than the interest rate on public debt, but the connection between interbank rates and deposit returns is significantly weaker in the crisis period 2008-2010. Counterfactual analysis shows a significant effect of the interbank rate and investment opportunities in public debt on deposit rates and bank profits, and that observed deposit rates are on average 115bp above collusive levels

Suggested Citation

  • Carlos Pérez Montes, 2013. "The impact of interbank and public debt markets on the competition for bank deposits," Working Papers 1319, Banco de España.
    • Handle: RePEc:bde:wpaper:1319
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/13/Fich/dt1319e.pdf
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    Cited by:

    1. Julián Andrada-Félix & Adrian Fernandez-Perez & Fernando Fernández-Rodríguez, 2015. "Fixed income strategies based on the prediction of parameters in the NS model for the Spanish public debt market," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(2), pages 207-245, June.
    2. Liew Chung-Yee & Normaz Wana Ismail & Tan Ai-Lian, 2020. "Is Public Debt Asymmetrically Link to Financial Development in Malaysia?," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 10(3), pages 97-110, March.
    3. Qamar ABBAS & Muhammad RAMZAN & Sumbal FATIMA, 2022. "Financial development and public debt. Estimating the role of institutional quality," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(632), A), pages 5-26, Autumn.

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    More about this item

    Keywords

    Bank Competition; Interbank Rates; Public Debt; Nested Logit; Counterfactual Analysis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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