Banking Sector Performance in Latin America: Market Power Versus Efficiency
19 Pages Posted: 14 Apr 2011
Date Written: May 2011
Abstract
Since the mid-1990s the banking sector in the Latin American emerging markets has experienced profound changes due to financial liberalization, a significant increase in foreign investments, and greater merger activities often occurring following financial crises. The wave of consolidation and the rapid increase in market concentration that took place in most countries has generated concerns about the rise in banks' market power and its potential effects on consumers. This paper advances the existing literature by testing the market power (Structure-Conduct-Performance and Relative Market Power) and efficient structure (X- and scale-efficiency) hypotheses for a sample of over 2500 bank observations in nine Latin American countries over 1997-2005. We use the Data Envelopment Analysis technique to obtain reliable efficiency measures. We produce evidence supporting the efficient structure hypotheses. The findings are particularly robust for the largest banking markets in the region, namely Brazil, Argentina, and Chile. Finally, capital ratios and bank size seem to be among the most important factors in explaining higher than normal profits for Latin American banks.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Efficiency of Financial Institutions: International Survey and Directions for Future Research
By Allen N. Berger and David B. Humphrey
-
Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?
By Allen N. Berger and Loretta J. Mester
-
Entry Restrictions, Industry Evolution, And Dynamic Efficiency: Evidence from Commercial Banking
By Jith Jayaratne and Philip E. Strahan
-
The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function
By Jalal D. Akhavein, Allen N. Berger, ...
-
Problem Loans and Cost Efficiency in Commercial Banks
By Allen N. Berger and Robert Deyoung
-
The Effects of Geographic Expansion on Bank Efficiency
By Allen N. Berger and Robert Deyoung
-
Organizational Form and Efficiency: An Analysis of Stock and Mutual Property-Liability Insurers
By J David Cummins, Mary A. Weiss, ...
-
Cost and Profit Dynamics in Financial Conglomerates and Universal Banks in Europe
-
By Paul W. Bauer, Allen N. Berger, ...
-
By Allen N. Berger and Loretta J. Mester