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Financial Liberalization, Bank Market Structure, and Financial Deepening: An Interest Margin Analysis

  • Abdourahmane Sarr
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    The paper shows that commercial banks’ ability to lower deposit interest rates (market power) can increase deposit mobilization. Interest expenses saved can subsidize and lower fees on checking and branching services and thus help attract deposits. United States data illustrates the financial deepening effect of this market power. Commercial banks’ ability to lower deposit interest rates diminishes when their deposits become closer substitutes to nonbank liabilities requiring greater interest rate competition. Lack of bank deposit market power, including through capital account mobility, may lessen financial deepening.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/38.

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    Length: 30
    Date of creation: 01 Mar 2000
    Date of revision:
    Handle: RePEc:imf:imfwpa:00/38
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