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Capital Account Liberalization and the Composition of Bank Liabilities

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  • Luís A.V. Catão
  • Daniel Marcel te Kaat

Abstract

Using a sample of almost 600 banks in Latin America, we show that capital account liberalization lowers the share of equity and raises the share of interbank funding in total liabilities of the consolidated banking system. These shifts are mostly due to large banks; smaller banks, instead, increase their resort to retail funding by offering higher average de- posit interest rates than larger banks. We also find significant differences in the behavior of foreign banks and of banks with seemingly greater information opacity. These findings have positive implications for macro-prudential regulation.

Suggested Citation

  • Luís A.V. Catão & Daniel Marcel te Kaat, 2018. "Capital Account Liberalization and the Composition of Bank Liabilities," Working Papers REM 2018/53, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
  • Handle: RePEc:ise:remwps:wp0532018
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    Keywords

    External Financial Liberalization; International Capital Flows; Bank Funding and Leverage;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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