Measuring the Determinants of Average and Marginal Bank Interest Rate Spreads in Chile, 1994-2001

The study of bank interest rate spreads is central to our understanding of the process of financial intermediation. Data limitations generally restrict empirical analyses to interest rate spreads that are constructed from bank income statements and balance sheets. In this paper we make use of a data set that allows us directly to compute interest rate spreads based on individual bank loan and deposit rates reported on a monthly basis to the Central Bank of Chile. The information is disaggregated by unit of account (peso, inflation-indexed, and dollar) over the period 1994-2001. We find that the estimated impacts of industry concentration, business cycle variables, and monetary policy variables differ markedly between interest rate spreads based on balance sheet data and interest rate spreads based on disaggregated loan and deposit data. Since empirical work on interest spreads is used for guiding policy recommendations, these findings have important implications for the interpretation of interest spreads regressions. Our analysis calls for some caution in the interpretation of estimated empirical determinants of bank spreads that are constructed from income statements and balance sheet data. At the same time, our analysis shows how information from the two types of interest rate spreads can be combined to create a more complete portrait of bank behavior than either type alone is capable of creating. The results for Chile suggest the potential importance of gathering such disaggregated data in other countries.

Business Cycle Dynamics and Shock Resilience in Chile

In this paper we use a VAR model to analyze the response of the Chilean business cycle to shocks and the capacity of the Chilean economy to withstand them (resilience). Novel features in the analysis include the introduction of an expanded set of variables to capture the impact of external shocks and domestic shocks —including policy variables; the use of an extended sample since the 1950s; and the introduction of block exogeneity to capture the small open economy feature and to better deal with identification issues. Among key results, we find that foreign shocks have been the dominant source of business cycle fluctuations, followed by monetary policy shocks, while fiscal policy shocks explain relatively little; and that despite of the increased synchronization of the domestic business cycle with international conditions, the resilience of the Chilean economy to external shocks has increased during the nineties, with countercyclical policies playing an important role in such a positive development

Bank Lending Channel and the Monetary Transmission Mechanism: the Case of Chile

This paper analyses the evidence about the bank-lending channel in Chile during the period 1990- 2002 using data from both the banking sector and the corporate sector. First, we estimate a panel data of banks to identify shifts in the loan supply curve in response to changes in monetary policy. Second, taking into consideration the evidence gathered in the previous step, we construct an aggregate variable aimed to capture the main forces behind the bank lending channel, and we estimate a VAR system to test whether or not this channel exacerbates the effect of a monetary policy shock over macroeconomic activity. We conclude that the bank-lending channel has operated as a monetary policy transmission mechanism in Chile during the sample period, having an independent and significant effect in terms of macroeconomic activity.

Un Indicador Líder del IMACEC

This paper proposes a leading indicator for economic activity in Chile as a satellite model for short run forecasting purposes. A methodology to identify series that anticipate economic activity is presented in the first place. Then, some alternative leading indicators are constructed and evaluated. Among these indicators, we select the one that is most successful in terms of signaling business cycles turnovers.

Sobre los Determinantes de los Spreads Marginal y Promedio de las Tasas de Interés Bancarias: Chile 1994-2001

The study of bank interest rate spreads is central to our understanding of the process of financial intermediation. Data limitations generally restrict empirical analyses to interest rate spreads that are constructed from bank income statements and balance sheets. In this paper we make use of a dataset that allows us to directly compute interest rate spreads based on individual bank loan and deposit rates reported on a monthly basis to the relevant organization. The information is disaggregated by unit of account (peso,the inflation-indexed UF, and dollar) over the period 1994-2001. We find that the estimated impacts of industry concentration, business cycle variables, and monetary policy variables differ markedly between interest rate spreads based on balance sheet data and interest rate spreads based on disaggregated loan and deposit data. Since empirical work on interest spreads is used for guiding policy recommendations, these findings have important implications for the interpretation of interest spreads regressions. Our analysis calls for some aution in interpreting estimated empirical determinants of bank spreads that are constructed from income statements and balance sheet data. At the same time, it shows how information from the two types of interest rate spreads can be combined to create a more complete portrait of bank behavior than either type is capable of drawing by itself. The results for Chile suggest the potential importance of gathering such disaggregated data in other countries.

Economías de Escala y Economías de Ámbito en el Sistema Bancario Chileno

Este estudio se focaliza en la eficiencia de costos del sistema bancario chileno. Se encuentra evidencia a favor de la existencia de economías de escala en bancos de tamaño pequeño y mediano, no así para los bancos grandes. La inexistencia de evidencia a favor de las economías de ámbito no respalda la creencia usual de que un supermercado financiero es necesariamente más eficiente. Con todo, las nulas o acotadas ganancias de eficiencia que se pueden obtener al aumentar la escala de producción o la composición de la canasta de productos ofrecida, son consistentes con una industria bancaria chilena operando eficientemente, en términos de costos, durante la década de los noventa. La principal fortaleza de este resultado es que se deriva de la estimación de una función de costos flexible, la cual no impone un sesgo hacia deseconomías de escala como es el caso de una función de costos translogarítmica. Además, nuestros resultados son robustos a distintas combinaciones de la canasta de servicios financieros que ofrecen los bancos. Finalmente, entre otros resultados, nuestro estudio respalda el argumento de que los bancos que mantuvieron deuda subordinada aumentaron su eficiencia, en términos de costos, una vez extinguida dicha obligación.

Market Discipline in Depositors’ Behavior and the Role of Risk-Rating Agencies: The Case of Chile

This study re-examines the evidence of market discipline in depositors’ behavior in the Chilean banking system, and analyzes the role of risk-rating agencies in complementing the information available to the market for evaluating bank solvency in Chile. With that in mind, we use data on deposits by size and institutional sector, effective interest rates on time deposits, a set of indicators that reflect the solvency of banks, and the risk rates of bank-issued fixed-income securities. Our results for Chile show that the empirical evidence about market discipline tends to be stronger and more robust when measured by the interest rate, as opposed to the rate of growth of time deposits. Our empirical assessment regarding the role of risk-rating agencies in disseminating relevant information that promotes market discipline is inconclusive. On the one hand, we find some evidence in favor of the hypothesis that the analytical contribution of these entities cannot be replaced by more direct indicators of bank solvency, which can be constructed with publically available information. On the other, we find other evidence that tend to weaken the previous hypothesis.