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High Interest Rates Spreads And The Costs Of Intermediation
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Book Synopsis High Interest Rates, Spreads, and the Costs of Intermediation by : James A. Hanson
Download or read book High Interest Rates, Spreads, and the Costs of Intermediation written by James A. Hanson and published by . This book was released on 1986 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: High interest rates have become a global concern in both the industrialized and developing countries. In some developing countries they have reached real levels far above even the unprecedented rates prevailing in international capital markets. Such rates prejudice investment and clearly require attention if growth is to be resumed during adjustment. The two papers in this volume analyze some of the causes of high real rates and suggest some policy options for bringing rates down. The first paper summarizes the Industry Department's ongoing work on high real rates while the second paper presents perhaps the first cross-country analysis of banking costs and profits in developing countries. The papers conclude that reductions in direct taxes and in reserve requirements and forced investments could reduce the gap between deposit and lending rates dramatically, and thus lower real lending rates sharply.
Book Synopsis Interest Spreads in Banking by : Mr.Adolfo Barajas
Download or read book Interest Spreads in Banking written by Mr.Adolfo Barajas and published by International Monetary Fund. This book was released on 1998-08-01 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the determinants of the high intermediation spread observed in the Colombian banking sector for over two decades. A reduced-form equation is estimated on the basis of a bank profit maximization model that permits a decomposition into operational costs, financial taxation, market power, and loan quality. Although the average spread did not change between the pre liberalization (1974-88) and post liberalization (1991-96) periods, its composition did, with market power being significantly reduced and the responsiveness to loan quality increased. Colombia’s progress in reducing operational costs and financial taxation and improving loan quality, will determine whether it can narrow the spread.
Book Synopsis The Intermediation Spread in Colombian Banks by : Roberto Stein
Download or read book The Intermediation Spread in Colombian Banks written by Roberto Stein and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: After several decades of financial repression with some partial attempts at liberalization, Colombian policymakers set out to complete the liberalization process in the early nineties, reducing financial taxation, freeing interest rates, facilitating entry/exit, and eliminating capital account restrictions. As this was expected to increase efficiency and competitiveness of financial intermediation, an implicit objective was to reduce interest rate spreads, historically high by international standards. We estimate a profit maximization model using panel data on 22 Colombian banks with monthly observations during 1992-96 to analyze the determinants of the spread between loan and deposit rates. The average spread has been around 20-30 percentage points, 1/3 of which was explained by costs (resource plus financial taxation costs), another 1/3 by credit risk, and the remaining 1/3 by lack of competition or market power. With respect to market power, ownership was an important factor; while private banks exhibited significant market power, charging a markup of about 20% over marginal costs, state banks=B9 spreads were indistinguishable from marginal costs. With respect to costs, retail and state banks tended to have higher marginal costs by 4 and 9 percentage points respectively. A continuous decline in spreads was explained primarily by a reduction in financial taxation, since no significant gains in competition or efficiency occurred. Finally, bivariate tests suggested that banks exert their market power on the loan side, where competition from other types of financial institutions has not been as great.
Book Synopsis Why So High? by : Philip Lawton Brock
Download or read book Why So High? written by Philip Lawton Brock and published by IDB. This book was released on 2000 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Costly Intermediation and the Big Push by : Zsolt Becsi
Download or read book Costly Intermediation and the Big Push written by Zsolt Becsi and published by . This book was released on 1998 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Banking Spreads in Latin America by : Gaston Gelos
Download or read book Banking Spreads in Latin America written by Gaston Gelos and published by INTERNATIONAL MONETARY FUND. This book was released on 2006-02-01 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Intermediation spreads in Latin America are high by international standards. This paper examines the determinants of bank interest margins in that region using bank and country-level data from 85 countries, including 14 Latin American economies. The results suggest that Latin America has higher interest rates, less efficient banks, and larger reserve requirements than other regions and that these factors have a significant impact on spreads. However, Latin American countries do not differ markedly from their peers in other aspects that are found important in determining the cost of financial intermediation, such as inflation and bank profit taxation.
Book Synopsis Do Interest Rate Controls Work? Evidence from Kenya by : Mr.Emre Alper
Download or read book Do Interest Rate Controls Work? Evidence from Kenya written by Mr.Emre Alper and published by International Monetary Fund. This book was released on 2019-05-31 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the impact of interest rate controls in Kenya, introduced in September 2016. The intent of the controls was to reduce the cost of borrowing, expand access to credit, and increase the return on savings. However, we find that the law on interest rate controls has had the opposite effect of what was intended. Specifically, it has led to a collapse of credit to micro, small, and medium enterprises; shrinking of the loan book of the small banks; and reduced financial intermediation. We also show that interest rate caps reduced the signaling effects of monetary policy. These suggest that (i) the adverse effects could largely be avoided if the ceiling was high enough to facilitate lending to higher risk borrowers; and (ii) alternative policies could be preferable to address concerns about the high cost of credit.
Book Synopsis International Convergence of Capital Measurement and Capital Standards by :
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Inside and Outside Liquidity by : Bengt Holmstrom
Download or read book Inside and Outside Liquidity written by Bengt Holmstrom and published by MIT Press. This book was released on 2013-01-11 with total page 263 pages. Available in PDF, EPUB and Kindle. Book excerpt: Two leading economists develop a theory explaining the demand for and supply of liquid assets. Why do financial institutions, industrial companies, and households hold low-yielding money balances, Treasury bills, and other liquid assets? When and to what extent can the state and international financial markets make up for a shortage of liquid assets, allowing agents to save and share risk more effectively? These questions are at the center of all financial crises, including the current global one. In Inside and Outside Liquidity, leading economists Bengt Holmström and Jean Tirole offer an original, unified perspective on these questions. In a slight, but important, departure from the standard theory of finance, they show how imperfect pledgeability of corporate income leads to a demand for as well as a shortage of liquidity with interesting implications for the pricing of assets, investment decisions, and liquidity management. The government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages. In this perspective, private risk-sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions.
Book Synopsis Climate Finance Intermediation by : Kai Lessmann
Download or read book Climate Finance Intermediation written by Kai Lessmann and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Interest rates are central determinants of saving and investment decisions. Costly financial intermediation distort these price signals by creating a spread between the interest rates on deposits and loans with substantial effects on the supply of funds and the demand for credit. This study investigates how interest rate spreads affect climate policy in its ambition to shift capital from polluting to low-carbon sectors of the economy. To this end, we introduce financial intermediation costs in a dynamic general equilibrium climate policy model. We find that costly financial intermediation affects carbon emissions in various ways through a number of different channels. For low to moderate interest rate spreads, carbon emissions increase by up to 7 percent, in particular, because of lower investments into the capital intensive clean energy sector. For very high interest rate spreads, emissions fall because lower economic growth reduces carbon emissions. If a certain temperature target should be met, carbon prices have to be adjusted upwards by up to one third under the presence of capital market frictions.
Book Synopsis Financial Intermediation, Exchange Rates, and Unconventional Policy in an Open Economy by : Luis Felipe Céspedes
Download or read book Financial Intermediation, Exchange Rates, and Unconventional Policy in an Open Economy written by Luis Felipe Céspedes and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops an open economy model in which financial intermediation is subject to occasionally binding collateral constraints, and uses the model to study unconventional policies such as credit facilities and foreign exchange intervention. The model highlights the interaction between the real exchange rate, interest rates, and financial frictions. The exchange rate can affect the financial intermediaries' international credit limit via a net worth effect and a leverage ratio effect; the latter is novel and depends on the equilibrium link between exchange rates and interest spreads. Unconventional policies are nonneutral if and only if financial constraints are binding in equilibrium. Credit programs are more effective if targeted towards financial intermediaries rather than the corporate sector. Sterilized foreign exchange interventions matter because the increased availability of tradables, resulting from the sterilizing credit, can relax financial frictions; this perspective is new in the literature. Finally, self fulfilling expectations can lead to the coexistence of financially constrained and unconstrained equilibria, justifying a policy of defending the exchange rate and the accumulation of international reserves.
Book Synopsis Quantifying the Impact of Financial Development on Economic Development by : Jeremy Greenwood
Download or read book Quantifying the Impact of Financial Development on Economic Development written by Jeremy Greenwood and published by DIANE Publishing. This book was released on 2010-10 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for the years 1974 and 2004. It is then used to study the international data, using cross-country interest-rate spreads and per-capita GDP. The analysis suggests that a country like Uganda could increase its output by 140 to 180 percent if it could adopt the world's best practice in the financial sector. Still, this amounts to only 34 to 40 percent of the gap between Uganda's potential and actual output. Charts and tables.
Book Synopsis Bank Profitability and Risk-Taking by : Natalya Martynova
Download or read book Bank Profitability and Risk-Taking written by Natalya Martynova and published by International Monetary Fund. This book was released on 2015-11-25 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
Book Synopsis Determinants of Commercial Bank Interest Margins and Profitability by : Asl? Demirgüç-Kunt
Download or read book Determinants of Commercial Bank Interest Margins and Profitability written by Asl? Demirgüç-Kunt and published by World Bank Publications. This book was released on 1998 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: March 1998 Differences in interest margins reflect differences in bank characteristics, macroeconomic conditions, existing financial structure and taxation, regulation, and other institutional factors. Using bank data for 80 countries for 1988-95, Demirgüç-Kunt and Huizinga show that differences in interest margins and bank profitability reflect various determinants: * Bank characteristics. * Macroeconomic conditions. * Explicit and implicit bank taxes. * Regulation of deposit insurance. * General financial structure. * Several underlying legal and institutional indicators. Controlling for differences in bank activity, leverage, and the macroeconomic environment, they find (among other things) that: * Banks in countries with a more competitive banking sector-where banking assets constitute a larger share of GDP-have smaller margins and are less profitable. The bank concentration ratio also affects bank profitability; larger banks tend to have higher margins. * Well-capitalized banks have higher net interest margins and are more profitable. This is consistent with the fact that banks with higher capital ratios have a lower cost of funding because of lower prospective bankruptcy costs. * Differences in a bank's activity mix affect spread and profitability. Banks with relatively high noninterest-earning assets are less profitable. Also, banks that rely largely on deposits for their funding are less profitable, as deposits require more branching and other expenses. Similarly, variations in overhead and other operating costs are reflected in variations in bank interest margins, as banks pass their operating costs (including the corporate tax burden) on to their depositors and lenders. * In developing countries foreign banks have greater margins and profits than domestic banks. In industrial countries, the opposite is true. * Macroeconomic factors also explain variation in interest margins. Inflation is associated with higher realized interest margins and greater profitability. Inflation brings higher costs-more transactions and generally more extensive branch networks-and also more income from bank float. Bank income increases more with inflation than bank costs do. * There is evidence that the corporate tax burden is fully passed on to bank customers in poor and rich countries alike. * Legal and institutional differences matter. Indicators of better contract enforcement, efficiency in the legal system, and lack of corruption are associated with lower realized interest margins and lower profitability. This paper-a product of the Development Research Group-is part of a larger effort in the group to study bank efficiency.
Book Synopsis Interest Spreads in Banking by : Mr. Adolfo Barajas
Download or read book Interest Spreads in Banking written by Mr. Adolfo Barajas and published by International Monetary Fund. This book was released on 1998-08-01 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the determinants of the high intermediation spread observed in the Colombian banking sector for over two decades. A reduced-form equation is estimated on the basis of a bank profit maximization model that permits a decomposition into operational costs, financial taxation, market power, and loan quality. Although the average spread did not change between the pre liberalization (1974-88) and post liberalization (1991-96) periods, its composition did, with market power being significantly reduced and the responsiveness to loan quality increased. Colombia’s progress in reducing operational costs and financial taxation and improving loan quality, will determine whether it can narrow the spread.
Book Synopsis An Empirical Analysis of Interest Rate Spread in Kenya by : Rose Ngugi
Download or read book An Empirical Analysis of Interest Rate Spread in Kenya written by Rose Ngugi and published by . This book was released on 2001 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Hedge Funds, Financial Intermediation, and Systemic Risk by : John Kambhu
Download or read book Hedge Funds, Financial Intermediation, and Systemic Risk written by John Kambhu and published by DIANE Publishing. This book was released on 2008-04 with total page 214 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hedge funds have become important players in the U.S. & global capital markets. These largely unregulated funds use: a variety of complex trading strategies & instruments, in their liberal use of leverage, in their opacity to outsiders, & in their convex compensation structure. These differences can exacerbate market failures associated with agency problems, externalities, & moral hazard. Counterparty credit risk mgmt. (CCRM) practices are the first line of defense against market disruptions with potential systemic consequences. This article examines how the unique nature of hedge funds may generate market failures that make CCRM for exposures to the funds intrinsically more difficult to manage, both for regulated institutions & for policymakers. Ill.
