Banking Competition and the Lending Channel: Evidence from Bank-Level Data in Asia and Latin America

27 Pages Posted: 31 Aug 2009

See all articles by Maria Pia Olivero

Maria Pia Olivero

Drexel University - Department of Economics & International Business

Li Yuan

affiliation not provided to SSRN

Bang Nam Jeon

Drexel University - Department of Economics & International Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 24, 2009

Abstract

This paper examines how banking competition affects the transmission of monetary policy through the bank lending channel. Using bank-level panel data for commercial banks of ten Asian countries and ten Latin American countries during the period from 1996 to 2006, we apply a two-step estimation procedure. In the first step we measure the degree of banking competition by applying the methodology proposed by Panzar and Rosse (1987). The results show that the banking sector in these economies has experienced an increase in competition since the mid 1990s. In the second step we estimate a loan growth equation where the explanatory variables include the Panzar-Rosse measure of banking competitiveness. The estimation results provide consistent evidence that increased competition in the banking sector weakens the bank lending channel. This is especially so for banks with high liquidity and large size. We also find that overall, banking competition in Latin America is higher than in Asia, making the bank lending channel weaker there. We also discuss policy implications of the main findings of the paper.

Keywords: banking competition, bank lending channel, monetary policy transmission

JEL Classification: E4, E5, F3, G, L1

Suggested Citation

Olivero, Maria Pia and Yuan, Li and Jeon, Bang Nam, Banking Competition and the Lending Channel: Evidence from Bank-Level Data in Asia and Latin America (August 24, 2009). Available at SSRN: https://ssrn.com/abstract=1461928 or http://dx.doi.org/10.2139/ssrn.1461928

Maria Pia Olivero

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Li Yuan

affiliation not provided to SSRN

Bang Nam Jeon (Contact Author)

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

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