The determinants of bank margins revisited: A note on the effects of diversification
Santiago Carbo Valverde () and
Francisco Rodríguez Fernández ()
No 05/11, ThE Papers from Department of Economic Theory and Economic History of the University of Granada.
Most of the theoretical and empirical literature on bank margins has dealt solely with interest margins. Applying the seminal Ho-Saunders model (JFQA, 1981) to a multi-output framework, we show that the relationship between bank margins and market power (controlling for risk) varies significantly across bank specializations. Using a set of both accounting margins and New Empirical Industrial Organization (NEIO) margins, we find that market power rises significantly with output diversification towards non-traditional activities. These results contribute to explain the paradoxical coexistence of decreasing interest margins and higher market power found in previous studies.
Keywords: bank margins; specialization; market structure. (search for similar items in EconPapers)
JEL-codes: G21 D40 (search for similar items in EconPapers)
Pages: 19 pages
New Economics Papers: this item is included in nep-com and nep-fin
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Persistent link: https://EconPapers.repec.org/RePEc:gra:wpaper:05/11
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