Maturity transformation and deposit franchise in Latin American banks

Carlos Castro Iragorri and Juan Medellín

Documentos de Trabajo from Universidad del Rosario

Abstract: This paper examines the role of deposit franchise in mitigating interest rate risk among Latin American commercial banks over the period 2005–2023. Using individual bank estimates and a panel dataset across multiple countries, we estimate expense betas—the sensitivity of funding costs to policy rate changes—as a measure of franchise strength. We find that Latin American banks exhibit average betas of 10%, significantly lower than the 35-40% observed in U.S. and European banks, indicating strong franchise effects. We find that overhead costs and market power, rather than bank size, explain beta variation. While interest rate increases reduce deposit and loan volumes, they have limited effects on income, underscoring the franchise’s stabilizing role.

Keywords: Maturity transformation; Deposit franchise; Net interest margins; Market power (search for similar items in EconPapers)
JEL-codes: E43 G21 L22 (search for similar items in EconPapers)
Pages: 33
Date: 2025-05-13
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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:022157

DOI: 10.48713/10336_45314

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