A Hellbound Road Paved with Good Intentions: Usury Laws and Bank Competition in Colombia
22 Pages Posted: 9 Feb 2011
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: Suggested Citation