competition among banks and monetary policy pdf

Competition among banks and monetary policy pdf

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Impact of bank competition on the interest rate pass-through in the euro area

Hans Degryse, Adiana Paola Morales Acevedo, and Steven Ongena

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This phenomenon is economically more significant for periphery country banks than for core country banks.

Impact of bank competition on the interest rate pass-through in the euro area

This chapter combines recent findings from the empirical banking literature with established insights from studies of banking competition and regulation. It starts with a concise overview and assessment of the different methodological approaches taken to address banking competition. While market structure indicators are readily available, they may not be overly informative about the competitive conditions in banking markets. The chapter then structures a discussion on the empirical findings based upon a framework that finds its roots in the different theories of financial intermediation. Many other specific approaches to infer banking competition are discussed, in particular, the impact that regulation and information-sharing between banks may have on banking competition. Keywords: competition , banking sector , market structure , regulation , information-sharing. Access to the complete content on Oxford Handbooks Online requires a subscription or purchase.

Hans Degryse, Adiana Paola Morales Acevedo, and Steven Ongena

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated. Impact of bank competition on the interest rate pass-through in the euro area. This paper analyses the impact of loan market competition on the interest rates applied by euro area banks to loans and deposits during the period, using a novel measure of competition called the Boone indicator. We find evidence that stronger competition implies significantly lower spreads between bank and market interest rates for most loan market products. Using an error correction model ECM approach to measure the effect of competition on the pass-through of market rates to bank interest rates, we likewise find that banks tend to price their loans more in accordance with the market in countries where competitive pressures are stronger. Further, where loan market competition is stronger, we observe larger bank spreads implying lower bank interest rates on current account and time deposits. This would suggest that the competitive pressure is heavier in the loan market than in the deposit markets, so that banks compensate for their reduction in loan market income by lowering their deposit rates.

Nakhoda, Aadil : Bank competition and export diversification. The role of the banking industry in export promotion cannot be over-emphasized as banks provide the necessary financial support for borrowers in various industries to undertake investment activities. The banking industry consists of larger and smaller banks and the former are likely to be the preferred lenders as they provide loans for investment activities at a lower interest rate but may only finance the good borrowers within selected industries that are considered profitable. The banks require an appropriate market structure based on the level of competition in order to finance the maximum number of industries and in turn promote exporting activities across several industries within an economy. The influence of the market structure on export diversification is determined by the level of financial development and the prevailing macroeconomic conditions within an economy.


Specifically, in the presence of non$cooperative behavior and limited entry, monetary policy only affects the rate of return to money. There$ fore, it.


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Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing borrowing by banks from each other to meet their short-term needs or the money supply , often as an attempt to reduce inflation or the interest rate , to ensure price stability and general trust of the value and stability of the nation's currency. Monetary policy is a modification of the supply of money, i. This is in contrast to fiscal policy , which relies on taxation , government spending , and government borrowing [4] as methods for a government to manage business cycle phenomena such as recessions.

We find evidence that stronger competition implies significantly lower spreads between bank and market interest rates for most loan market products, in line with expectations. Using an error correction model ECM approach to measure the effect of competition on the pass-through of market rates to bank interest rates, we likewise find that banks tend to price their loans more in accordance with the market in countries where competitive pressures are stronger. Further, where loanmarket competition is stronger, we observe larger bank spreads implying lower bank interest rates on current account and time deposits.

Bank competition and export diversification

Abstract: This study compares banking behavior towards monetary policy rate changes in two different markets, i. It expands Monti Klein model of monopolistic bank by incorporating Capital Adequacy Requirement CAR ratio as a measure to promote resilience of banking system.

3 comments

  • Alex W. 25.05.2021 at 01:31

    To read the full-text of this research, you can request a copy directly from the author. Request full-text PDF.

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  • Eustasio E. 29.05.2021 at 07:30

    Economic Policy pp Cite as.

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  • Brooke F. 31.05.2021 at 05:59

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