A Test of the Law of One Price in Retail Banking

Alfredo Martín‐oliver, Vicente Salas‐fumás and Jesús Saurina
Authors registered in the RePEc Author Service: Alfredo Martin-Oliver

Journal of Money, Credit and Banking, 2007, vol. 39, issue 8, 2021-2040

Abstract: This paper investigates the level and the determinants of retail banking interest rate differences among Spanish banks in the period 1989–2003. We find that the interest rates of twenty five different bank loan and deposit products adjust rather rapidly to their long‐term values in response to external shocks, as the relative version of the Law of One Price predicts, but the evidence runs contrary to the absolute version of the Law. Credit risk premium, part of the marginal cost of the loans granted by a particular bank, is an important source of interest rate dispersion across banks and loan products, both before and after Spain joined the Euro zone. Therefore, differences in credit risk policies across banks must be taken into account when forming expectations about European retail banking integration.

Date: 2007
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https://doi.org/10.1111/j.1538-4616.2007.00096.x

Related works:
Journal Article: A Test of the Law of One Price in Retail Banking (2007)
Working Paper: A test of the law of one price in retail banking (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:39:y:2007:i:8:p:2021-2040

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