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

27 Pages Posted: 31 Aug 2009 Last revised: 16 Jan 2017

See all articles by Maria Pia Olivero

Maria Pia Olivero

Drexel University - Department of Economics & International Business

Yuan Li

Drexel University - Department of Economics & International Business

Bang Nam Jeon

Drexel University - Department of Economics & International Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 31, 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 in ten Asian countries and ten Latin American countries during the period from 1996 to 2006, we apply a two-stage estimation procedure. In the first stage, we measure the degree of banking competition by applying the methodology proposed by Panzar and Rosse (1987). The results show that banking markets in Latin America and Asia are characterized by monopolistic competition, and overall, banking competition in Latin America is higher than in Asia. In the second stage regression analysis, we estimate a loan growth equation where the explanatory variables include the Panzar-Rosse measure of banking competition. The estimation results provide consistent evidence that increased competition in the banking sector weakens the transmission of monetary policy through the bank lending channel. This is especially so for banks in Latin American countries and banks with small size, low liquidity, and low capitalization. We also discuss the policy implications of the main findings of this paper.

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

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

Suggested Citation

Olivero, Maria Pia and Li, Yuan and Jeon, Bang Nam, Banking Competition and the Lending Channel: Evidence from Bank-Level Data In Asia and Latin America (August 31, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1464908 or http://dx.doi.org/10.2139/ssrn.1464908

Maria Pia Olivero

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

3141 Chestnut St.
Philadelphia, PA 19104
United States

Yuan Li

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

3141 Chestnut St.
Philadelphia, PA 19104
United States

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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