Financial Liberalization, Bank Market Structure, and Financial Deepening: An Interest Margin Analysis

Author/Editor:

Abdourahmane Sarr

Publication Date:

March 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The paper shows that commercial banks’ ability to lower deposit interest rates (market power) can increase deposit mobilization. Interest expenses saved can subsidize and lower fees on checking and branching services and thus help attract deposits. United States data illustrates the financial deepening effect of this market power. Commercial banks’ ability to lower deposit interest rates diminishes when their deposits become closer substitutes to nonbank liabilities requiring greater interest rate competition. Lack of bank deposit market power, including through capital account mobility, may lessen financial deepening.

Series:

Working Paper No. 2000/038

Subject:

Bank deposits Banking Commercial banks Deposit rates External debt Financial institutions Financial services Interest payments Interest rate ceilings Loans

English

Publication Date:

March 1, 2000

ISBN/ISSN:

9781451845686/1018-5941

Stock No:

WPIEA0382000

Pages:

30

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