How foreign participation and market concentration impact bank spreads: Evidence from Latin America

Maria Soledad Martinez Peria, Ashoka Mody

Research output: Contribution to journalArticlepeer-review

172 Scopus citations

Abstract

Increasing foreign participation and high concentration levels characterize the recent evolution of banking sectors' market structures in developing countries. We analyze the impact of these factors on Latin American bank spreads during the late 1990s. Our results suggest that foreign banks were able to charge lower spreads relative to domestic banks. This was more so for de novo foreign banks than for those that entered through acquisitions. The overall level of foreign bank participation seemed to influence spreads indirectly, primarily through its effect on administrative costs. Bank concentration was positively and directly related to both higher spreads and costs.

Original languageEnglish (US)
Pages (from-to)511-537
Number of pages27
JournalJournal of Money, Credit and Banking
Volume36
Issue number3 II
StatePublished - Jun 2004
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Keywords

  • Bank spreads
  • Concentration
  • Foreign bank participation
  • Market structure

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