The Effect of Cross-Industry Ownership on Pricing: Evidence from Bank-Pension Fund Common Ownership in Chile

We employ daily data from the Chilean banking industry from 1994 to 2001 to estimate the impact of cross-industry ownership structure within financial conglomerates on the pricing behavior of deposit and lending operations of banking institutions. Controlling for bank specific fixed effects, and for bank and market characteristics, we test whether banks with a pension fund affiliation had overall different pricing strategies with respect to non-affiliated banks, whether these banks display a different response to monetary policy changes and whether they reacted differently during the 1998 liquidity shock to the Chilean economy. The evidence suggests that banks with pension fund affiliation display a broader deposit and loan base and enjoy higher interest rate spreads, but they seem to react similarly to monetary policy changes with respect to banks that have no affiliation to pension funds. Finally, the evidence collected for the period around the liquidity shock indicates that banks with pension fund affiliation enjoyed some degree of insulation from market events, attracting a larger share of funds at the expense of other banks and posting higher spreads while those of other banks were shrinking.

Valorización de Fondos Mutuos Monetarios y su Impacto sobre Estabilidad Financiera.

In the last ten years the Chilean mutual fund industry has multiplied its assets around fivefold. In particular, money market funds have become important players in the financial sector as investors in time deposits as well as intermediating funds of the corporate sector. Given the importance of this industry, the methodology for valuating money market funds could play an important role in the functioning of the money market. In this vein, this paper presents evidence about the revaluation of the money market funds in Chile in the last several years and presents a framework to analyze the possible effects of introducing objective threshold levels that trigger revaluations of a mutual fund.