Risk, Concentration and Market Power in the Banking Industry: Evidence from the Colombian System (1997-2006)

CEDE Working Paper No. 2007-27

36 Pages Posted: 21 May 2009

See all articles by Jorge Tovar

Jorge Tovar

Universidad de los Andes, Colombia - Department of Economics

Christian R. Jaramillo

Universidad de los Andes

Carlos Eduardo Hernandez

Universidad de los Andes - Department of Economics

Date Written: November 20, 2007

Abstract

This paper examines the relationship between risk, concentration and the exercise of market power by banking institutions. We use monthly balance-sheet and interest rate data for the Colombian banking system from 1997 to 2006.The evidence shows that, in the face of high risk, banks transfer a larger share of risk to customers through higher intermediation margins. The result suggests that systemic risk acts as a “collusion” device for banks: while high concentration is not enough to have collusion, the true effects of high market concentration on interest rates’ mark-ups emerge when the system is under stress.

Keywords: Banking, market power, risk, concentration, intermediation margins

JEL Classification: g21, g34, g38, l11

Suggested Citation

Tovar, Jorge and Jaramillo, Christian R. and Hernandez, Carlos Eduardo, Risk, Concentration and Market Power in the Banking Industry: Evidence from the Colombian System (1997-2006) (November 20, 2007). CEDE Working Paper No. 2007-27, Available at SSRN: https://ssrn.com/abstract=1407759 or http://dx.doi.org/10.2139/ssrn.1407759

Jorge Tovar (Contact Author)

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

HOME PAGE: http://economia.uniandes.edu.co/profesores/planta/tovar_jorge

Christian R. Jaramillo

Universidad de los Andes ( email )

Cra 1 No 18A-10
Of. 310 Ed. A
Bogotá
Colombia
(+57 1) 339 4949 x 2439 (Phone)
332 4021 (Fax)

HOME PAGE: http://economia.uniandes.edu.co/html/home/home.php

Carlos Eduardo Hernandez

Universidad de los Andes - Department of Economics ( email )

Carrera 1a No. 18A-10
Bogota, AA4976
Colombia

HOME PAGE: http://economia.uniandes.edu.co/hernandez

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