Bank Competition and Investment Costs across Space

Olivia Bordeu, Gustavo González and Marcos Sorá

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: Using detailed loan-level data from Chile, we document significant geographic differences in interest rates for firm loans. Firms in cities with high borrowing costs pay around 280 basis points more than firms in low-cost cities. While these estimates account for differences in firm and loan characteristics across cities, we find evidence that they are related to the level of concentration in the local loan market. We examine the pass-through of monetary policy to lending rates and find that banks with higher local market shares exhibit stronger pass-through, aligning with oligopolistic models of branch competition.

Date: 2025-05
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