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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.

Abstract: 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
Date: 2005-06-01
New Economics Papers: this item is included in nep-com and nep-fin
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