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Maturity transformation and deposit franchise in Latin American banks

Author

Listed:
  • Carlos Castro Iragorri

    (Universidad del Rosario)

  • Juan Camilo Medellín Martínez

    (Universidad del Rosario)

Abstract

This paper examines the role of deposit franchise in mitigating interest rate risk among Latin American commercial banks over the period 2005–2023. Using individual bank estimates and a panel dataset across multiple countries, we estimate expense betas—the sensitivity of funding costs to policy rate changes—as a measure of franchise strength. We find that Latin American banks exhibit average betas of 10%, significantly lower than the 35-40% observed in U.S. and European banks, indicating strong franchise effects. We find that overhead costs and market power, rather than bank size, explain beta variation. While interest rate increases reduce deposit and loan volumes, they have limited effects on income, underscoring the franchise’s stabilizing role.

Suggested Citation

  • Carlos Castro Iragorri & Juan Camilo Medellín Martínez, 2025. "Maturity transformation and deposit franchise in Latin American banks," Documentos de Trabajo 022157, Universidad del Rosario.
    • Handle: RePEc:col:000092:022157
    DOI: 10.48713/10336_45314
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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