Intermediation Spread, Bank Supervision, and Financial Stability

Süheyla Özyıldırım ()
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Süheyla Özyıldırım: Faculty of Business Administration, Bilkent University, 06800 Bilkent Ankara, Turkey

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2010, vol. 13, issue 04, 517-537

Abstract: This paper models the effect of bank competition and deposit insurance premiums on the spread between lending and deposit rates. In developing economies, low spreads do not always indicate bank efficiency; they may be the result of high risk taking. This paper shows that imposing upper and lower limits on banks' spreads and adjusting deposit insurance premiums when violation of these limits occurs leads to a more stable but relatively large intermediation costs. In developing economies, such an outcome would be considered more desirable because it insulates existing financial intermediaries and investors against macroeconomic disturbances.

Keywords: Intermediation spread; deposit market; insurance premium; banking; financial stability (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1142/S0219091510002050

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