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Interest margins and bank regulation in Central America and the Caribbean

Author

Listed:
  • Anthony Birchwood
  • Michael Brei

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Dorian Noel

Abstract

This paper examines empirically the determinants of bank interest margins in Central America and the Caribbean over the period 1998-2014. A particular focus is set on the impact of differences in the regulatory environment and market structure across countries in explaining the interest margins of individual banks. Our results suggest that bank market power, operating costs, credit risk, and liquid asset holdings increase the margin between loan and deposit rates, while increased income diversification and GDP growth are associated with lower loan-deposit spreads. When considering information on banking regulation, we find strong evidence to support our main hypothesis that improvements in market quality and liberalization have a significant effect on interest margins. More specifically, reductions in entry requirements to banking, higher involvement of foreign banks, and increased financial statement transparency are associated with significant reductions in interest margins

Suggested Citation

  • Anthony Birchwood & Michael Brei & Dorian Noel, 2017. "Interest margins and bank regulation in Central America and the Caribbean," Post-Print hal-01589197, HAL.
    • Handle: RePEc:hal:journl:hal-01589197
    DOI: 10.1016/j.jbankfin.2017.08.003
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    Citations

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    Cited by:

    1. Brei, Michael & Ferri, Giovanni & Gambacorta, Leonardo, 2023. "Financial structure and income inequality," Journal of International Money and Finance, Elsevier, vol. 131(C).
    2. Nimrod Segev & Sigal Ribon & Michael Kahn & Jakob Haan, 2024. "Low Interest Rates and Banks’ Interest Margins: Does Deposit Market Concentration Matter?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 65(2), pages 189-218, June.
    3. Brei, Michael & Jacolin, Luc & Noah, Alphonse, 2020. "Credit risk and bank competition in Sub-Saharan Africa," Emerging Markets Review, Elsevier, vol. 44(C).
    4. Noel, Dorian M. & Bangwayo-Skeete, Prosper F. & Brei, Michael & Robinson, Justin, 2021. "Sovereign risk spill-overs in the banking sectors of Central America and the Caribbean," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 73(C).
    5. Pires Tiberto, Bruno & Oliveira de Moraes, Claudio & Pio Corrêa, Paloma, 2020. "Does transparency of central banks communication affect credit market? Empirical evidence for advanced and emerging markets," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    6. Nguyen, Thach V.H. & Nguyen, Thai Vu Hong, 2022. "How do banks price liquidity? The role of market power," Global Finance Journal, Elsevier, vol. 53(C).
    7. Tongurai, Jittima & Vithessonthi, Chaiporn, 2020. "Bank regulations, bank competition and bank risk-taking: Evidence from Japan," Journal of Multinational Financial Management, Elsevier, vol. 56(C).
    8. El Moussawi, Chawki & Goutte, Stéphane & Kouki, Imen & Obeid, Hassan, 2024. "Assessing the impact of the expansion of pan-African banks and the institution’s quality on African banking stability," Research in International Business and Finance, Elsevier, vol. 70(PA).
    9. Konstantins Benkovskis & Olegs Tkacevs & Karlis Vilerts, 2021. "Interest Rate Spreads in the Baltics and the Rest of the Euro Area: Understanding the Factors behind the Differences," Discussion Papers 2021/02, Latvijas Banka.
    10. Vithessonthi, Chaiporn, 2023. "The consequences of bank loan growth: Evidence from Asia," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 252-270.
    11. Pierpaolo GIANNOCCOLO & José Manuel MANSILLA-FERNÁNDEZ, 2017. "Bank Restructuring, Competition, and Lending Supply: Evidence from the Spanish Banking Sector," Departmental Working Papers 2017-16, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    12. Adachi-Sato, Meg & Vithessonthi, Chaiporn, 2021. "Bank risk-taking and corporate investment: Evidence from the Global Financial Crisis of 2007–2009," Global Finance Journal, Elsevier, vol. 49(C).
    13. Bismark Addai & Wenjin Tang & Adjei Gyamfi Gyimah & Kingsley Opoku Appiah, 2023. "Bank intermediation margins in transition banking domains: panel evidence from Africa," Economic Change and Restructuring, Springer, vol. 56(4), pages 2129-2167, August.
    14. Li Xian Liu & Milind Sathye, 2019. "Bank Interest Rate Margin, Portfolio Composition and Institutional Constraints," JRFM, MDPI, vol. 12(3), pages 1-21, July.
    15. Mansor H. Ibrahim & Siong Hook Law, 2019. "Financial Intermediation Costs In A Dual Banking System: The Role Of Islamic Banking," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 22(4), pages 531-552, December.
    16. Hu, Bo & Schclarek, Alfredo & Xu, Jiajun & Yan, Jianye, 2022. "Long-term finance provision: National development banks vs commercial banks," World Development, Elsevier, vol. 158(C).
    17. de Moraes, Claudio & Galvis-Ciro, Juan Camilo & Gargalhone, Micheli, 2021. "Financial access and interest rate spread: An international assessment," Journal of Economics and Business, Elsevier, vol. 114(C).

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