Determinants of the Cost of Financial Intermediation: Evidence from Emerging Economies

Mohammed Mizanur Rahman, Mahfuzur Rahman and Md. Abdul Kaium Masud ()
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Mohammed Mizanur Rahman: Department of Accounting and Information Systems, Comilla University, Cumilla 3506, Bangladesh
Md. Abdul Kaium Masud: Department of Business Administration, Noakhali Science and Technology University, Noakhali 3814, Bangladesh

IJFS, 2023, vol. 11, issue 1, 1-32

Abstract: This study examines the determinants of financial intermediation costs of banks in ten Emerging Economies (EEs) in the period 2000–2018 using panel data of 1335 banks. Empirically, this study applies the single-stage dealership model and its extensions by introducing new bank and country-level variables. We find robust evidence that investment in government securities and market openness positively affect bank intermediation costs while the trilemma index negatively affects them. During the world financial crisis, bank intermediation costs increased. Moreover, we observe that cost inefficiency, credit risk, and regulatory regime are the crucial drivers of bank intermediation costs. We draw important implications for scholars and policymakers.

Keywords: bank interest margins; financial intermediation; dealership model; banking crisis (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2023
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