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Interbank market frictions, international banks and growth

Author

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  • Thomas Gries
  • Gerhard Sievert
  • Axel Wieneke

Abstract

In developing countries and countries in transition, a lack of finance is regarded as a major reason for the underperformance of the SME sector. The financial sector does not channel funds efficiently from savers to the most efficient investment. In a general equilibrium endogenous growth model, we explain the underperformance of the SME sector by interbank market frictions. High information costs in the interbank market lead to a high loan/deposit spread and hence to a low growth equilibrium. The solution to this problem is twofold. First, central bank policy could reduce interbank information problems by providing effective bank supervision. Second, if the central bank is expected not to have sufficient monitoring capabilities, reputation and reserves, opening up the interbank market to international banks can substitute for insufficient central bank activities. Copyright Springer-Verlag Berlin Heidelberg 2004

Suggested Citation

  • Thomas Gries & Gerhard Sievert & Axel Wieneke, 2004. "Interbank market frictions, international banks and growth," International Economics and Economic Policy, Springer, vol. 1(2), pages 157-171, January.
    • Handle: RePEc:kap:iecepo:v:1:y:2004:i:2:p:157-171
    DOI: 10.1007/s10368-004-0011-z
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    Cited by:

    1. Christa N. Brunnschweiler, 2006. "Financing the alternative: renewable energy in developing and transition countries," CER-ETH Economics working paper series 06/49, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

    More about this item

    Keywords

    Endogenous growth; transition; financial intermediation; interbank market; asymmetric information; P20; O16; G21;
    All these keywords.

    JEL classification:

    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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