{
  "title": "Financial Liberalization, Bank Market Structure, and Financial Deepening: An Interest Margin Analysis",
  "publication": "IMF Working Papers, March 1, 2000",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/financial-liberalization-bank-market-structure-and-financial-deepening-an-interest-margin-3478",
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  "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.",
  "sections": [
    {
      "heading": "Key findings",
      "content": "- Commercial banks’ ability to lower deposit interest rates (market power) can increase deposit mobilization.\n- Interest expenses saved by banks can subsidize and lower fees on checking and branching services and thus help attract deposits.\n- United States data illustrates the financial deepening effect of this market power.\n- Commercial banks’ ability to lower deposit interest rates diminishes when their deposits become closer substitutes to nonbank liabilities, which requires greater interest rate competition.\n- Lack of bank deposit market power, including through capital account mobility, may lessen financial deepening."
    },
    {
      "heading": "Mechanisms and interpretation",
      "content": "- Market power on deposit interest rates reduces banks’ interest expenses.\n- Reduced interest expenses can be reallocated to lower service fees (checking and branching), enhancing deposit attraction.\n- Substitutability between bank deposits and nonbank liabilities increases competitive pressure on deposit rates, reducing banks’ market power.\n- Capital account mobility is identified as a channel that can erode bank deposit market power and thereby potentially weaken financial deepening."
    },
    {
      "heading": "Subject coverage and keywords",
      "content": "- Subject areas: Bank deposits, Banking, Commercial banks, Deposit rates, External debt, Financial institutions, Financial services, Interest payments, Interest rate ceilings, Loans\n- Keywords: bank deposit; bank market structure; banking industry; ceiling regulation; commercial bank; demand slope; deposit demand slope; deposit interest rate ceiling; deposit interest rate market power; deposit market power; Deposit rates; financial deepening; Financial liberalization; interest margin; interest market power; Interest payments; Interest rate ceilings; interest rate regulation; Loans; market power; market structure; price war; regulation in the U.S.; WP\n\n---\n\n Content in this bundle\n\n- wp0038\n  - wp0038 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp0038 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/financial-liberalization-bank-market-structure-and-financial-deepening-an-interest-margin-3478"
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    "Authors: Abdourahmane Sarr",
    "Published: March 1, 2000",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451845686.001",
    "Commercial banks’ ability to lower deposit interest rates (market power) can increase deposit mobilization.",
    "Interest expenses saved by banks 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, which requires greater interest rate competition.",
    "Lack of bank deposit market power, including through capital account mobility, may lessen financial deepening.",
    "Market power on deposit interest rates reduces banks’ interest expenses.",
    "Reduced interest expenses can be reallocated to lower service fees (checking and branching), enhancing deposit attraction.",
    "Substitutability between bank deposits and nonbank liabilities increases competitive pressure on deposit rates, reducing banks’ market power.",
    "Capital account mobility is identified as a channel that can erode bank deposit market power and thereby potentially weaken financial deepening.",
    "Subject areas: Bank deposits, Banking, Commercial banks, Deposit rates, External debt, Financial institutions, Financial services, Interest payments, Interest rate ceilings, Loans",
    "Keywords: bank deposit; bank market structure; banking industry; ceiling regulation; commercial bank; demand slope; deposit demand slope; deposit interest rate ceiling; deposit interest rate market power; deposit market power; Deposit rates; financial deepening; Financial liberalization; interest margin; interest market power; Interest payments; Interest rate ceilings; interest rate regulation; Loans; market power; market structure; price war; regulation in the U.S.; WP",
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