The determinants of net interest income in the Mexican banking system: an integrated model

This paper analyzes net interest income in the Mexican banking system over the period 1993-2005. Taking as reference the seminal work by Ho and Saunders (1981) and subsequent extensions by other authors, our study models the net interest margin simultaneously including operating costs and diversification and specialization as determinants of the margin. The results referring to the Mexican case show that its high margins can be explained mainly by average operating costs and by market power. Although non-interest income has increased in recent years, its economic impact is lowbanking; net interest income; operating cost; non-interest income

Patents, technological inputs and spillovers among regions

This paper analyses the importance of different technological inputs (R&D and human capital) and different spillovers in explaining the differences in patenting among Spanish regions in the period 1986-2003. The analysis is based on the estimation of a knowledge production function. A region’s own R&D activities and human capital are observed to have a positive significant effect on innovation output, measured by the number of patents. R&D spillovers weighted by the distance and the volume of trade flows between regions cause positive effects on a region’s patents. However, distance matters more than the intensity of trade flows and the R&D spillover effects between regions are bounded: spillovers from closer regions perform better than spillovers from distant regions. On the opposite side, human capital spillovers do not cause any effect outside the region itself.patents, R&D, human capital, spillovers

The cost of market power in banking: social welfare loss vs. inefficiency cost

This paper analyses the relationship between market power in the loan and deposit markets and efficiency in the EU15 countries over 1993-2002. Results show the existence of a positive relationship between market power and cost X-efficiency, allowing rejection of the so-called quiet life hypothesis (Berger and Hannan, 1998). The social welfare loss attributable to market power in 2002 represented 0.54% of the GDP of the EU15. Results show that the welfare gains associated with a reduction of market power are greater than the loss of bank cost efficiency, showing the importance of economic policy measures aimed at removing the barriers to outside competition.market power, welfare loss, X-inefficiency, banking

Regional Financial Development and Bank Competition: Effects on Firms' Growth

This paper analyzes the effect of regional financial development and bank competition on firms’ growth using the Spanish provinces as a testing ground. Our results show that firms in industries with a greater dependence on external finance grow faster in more financially developed provinces. The results also show that bank monopoly power has an inverted-U effect on firms’ growth, suggesting that market power has its highest effect at intermediate values. The effect is heterogeneous among firms according to the financial dependence of the industry they belong to. This result is consistent with the literature on relationship banking which argues that bank competition can have a negative effect on the availability of finance for more informationally opaque firms.economic growth; regional financial development; bank competition

Factors Explaining the Interest Margin in the Banking Sectors of the European Union

This study analyses the interest margin in the principal European banking sectors (Germany, France, the United Kingdom, Italy and Spain) in the period 1993-2000 using a panel of 15,888 observations, identifying the fundamental elements affecting this margin. Our starting point is the methodology developed in the original study by Ho and Saunders (1981) and later extensions, but widened to take banks’ operating costs explicitly into account. Also, unlike the usual practice in the literature, a direct measure of the degree of competition (Lerner index) in the different markets is used. The results show that the fall of margins in the European banking system is compatible with a relaxation of the competitive conditions (increase in market power and concentration), as this effect has been counteracted by a reduction of interest rate risk, credit risk, and operating costs.margins, competition

Banking competition, financial dependence and economic growth

The aim of this paper is to analyse the effect of financial development and banking competition on economic growth using both structural measures of competition (market concentration) and measures based on the new empirical industrial organization perspective (Panzar and Rosse`s test and the Lerner index). The evidence obtained in the period 1993-2003 for a sample of 53 sectors in 21 countries indicates that financial development and the exercise of bank market power promote economic growth. The latter result is consistent with the literature on relationship lending which argues that bank competition can have a negative effect on the availability of finance for companies that are informationally more opaque. The results cast doubt on the use of market concentration measures as indicators of competition.economic growth; financial development; bank competition

Regional financial development and bank competition: effects on economic growth

Many studies have analysed the effect of financial development and bank competition on economic growth from a cross-country perspective. However, to our knowledge, no paper has analysed the effect of these two financial variables on growth at regional level. This paper examines the case of the Spanish regions in an attempt to fill this gap. Our results show that firms in industries with a greater dependence on external finance grow faster in more developed financial regions. The results also show that bank monopoly power has an inverted-U effect on economic growth, suggesting that market power has its highest effect at intermediate values. The effect is heterogeneous among firms according to the financial dependence of the industry they belong to. This result is consistent with the literature on relationship banking which argues that bank competition can have a negative effect on the availability of finance for more informationally opaque firms.economic growth; regional financial development; bank competition

Convergence, integration and competition in the European financial markets

The aim of this paper is to analyze the process of integration and competition in European financial markets. We explore the obstacles or barriers which hinder this process, as well as the main drivers and initiatives which have been implemented to move financial integration forward. According to most of the evidence on this subject, the process of financial integration has indeed advanced, but the process is slow and far from having been achieved in many areas of financial activity, in particular, retail markets. Regarding competition, the evidence is not so conclusive. The fact is that although absolute margins have been narrowed, relative margins – as an indicator of market power - have increased. The different kinds of barriers (fiscal, regulatory, institutional, etc) which protect national markets from foreign competition are the main obstacles to this process of integration and competition.Convergence, integration, competition, financial markets

Public Capital and Productive Efficiency in the Spanish Regions (1964 1989)

The article analyses the evolution of the differences in economic conditions among Spanish regions from the perspective provided by the recent advances made in economic growth empirics. Although convergence is usually established in terms of Gross Value Added (GVA) per capita, in the case of Spain it is of special interest to break it down into three separate elements: activity rate, employment rate, and productivity of labour. Regional differences in unemployment rates, which persist for long periods of time, are identified as a force against convergence. After describing the distinction between conditional and non conditional convergence, the paper considers the role played by the productive structure in establishing regional differences, with special reference to the weight of the agricultural sector and the role of public capital in conditional convergence. Finally, conditional and non conditional convergence equations are estimated for the 17 Spanish regions for the 1955 1991 period. The paper concludes that the convergence process is concentrated in the first half of the period (1955 1979) and that both, the productive structure and public capital, had a significant role in the convergence process.Regional Convergence, Public Capital

Cross-Country Comparisons of Competition and Pricing Power in European Banking

Studies of banking competition and competitive behaviour both within and across countries typically utilise only one of the few measures that are available. In trying to assess the relative competitive position of banking markets in 14 European countries, we find that the existing indicators of competition often give conflicting predictions, both across countries and over time. Seeking greater consistency, we attempt to separate bank pricing power from other, non-core, influences embodied in competition measures. While there is some improvement in cross-country consistency, the main result is that our measure of bank pricing power suggests that banking market competition in Europe may well be stronger than implied by traditional measures and analysis.Competition; banking