A Hellbound Road Paved with Good Intentions: Usury Laws and Bank Competition in Colombia

22 Pages Posted: 9 Feb 2011

See all articles by Arturo José Galindo

Arturo José Galindo

Inter-American Development Bank

Christian R. Jaramillo

Universidad de los Andes

Date Written: February 8, 2011

Abstract

We use a monthly dataset for the Colombian banking system from 2002 to 2010 to test the role of interest rate ceilings on competition in different segments of the credit market. We use maximum likelihood estimations of double hurdle probabilistic models to estimate the probability of tacit collusion around interest rate ceilings. Our results suggest that interest ceilings play an important role as a collusion device in the mortgage credit market, where the estimated probability of collusive rates is around 22%. This does not seem to be a concern for other types of credit, which have probability estimates below 5%. This collusive behavior in housing credit seems to be persistent over time, but is stronger during stress periods, increases with market concentration, and is higher for smaller banks.

Keywords: Banks, Competition, Interest Rate Controls

JEL Classification: G2, L0, L12, L5

Suggested Citation

Galindo, Arturo José and Jaramillo, Christian R., A Hellbound Road Paved with Good Intentions: Usury Laws and Bank Competition in Colombia (February 8, 2011). Available at SSRN: https://ssrn.com/abstract=1757994 or http://dx.doi.org/10.2139/ssrn.1757994

Arturo José Galindo (Contact Author)

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

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

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