The Dynamics of Bank Spreads and Financial Structure
By Reint Gropp, Christoffer Kok, Jung-Duk Lichtenberger. Social Science Research Network, 2014
199 citations recorded by the source corpus.
This paper investigates the effect of within banking sector competition and competition from financial markets on the dynamics of the transmission from monetary policy rates to retail bank interest rates in the euro area. We use a new dataset that permits analysis for disaggregated bank products. Using a difference-in-difference approach, we test whether development of financial markets and financial innovation speed up the pass through. We find that more developed markets for equity and corporate bonds result in a faster pass-through for those retail bank products directly competing with these markets. More developed markets for securitized assets and for interest rate derivatives also speed up the transmission. Further, we find relatively strong effects of competition within the banking sector across two different measures of competition. Overall, the evidence supports the idea that developed financial markets and competitive banking systems increase the effectiveness of monetary policy.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/a6676b2716b3a85d94e2439bc5aaf1d66a3ab18b
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Citations in the corpus
- Credit and Banking in a DSGE Model of the Euro Area (2010, background): “In a related paper, Gropp et al. (2007) report that deposit rates adjust more slowly than lending rates and that, in general, the speed of adjustment is influenced by the degree of competition, both from other banks and from financial markets.”
- Housing Finance in the Euro Area (2009, unknown): “8 Kleimeier and Sander (2006) and Gropp et al. (2007).”
- Impact of bank competition on the interest rate pass-through in the euro area (2013, unknown): “related to euro area bank lending rates, using an index of deregulation, constructed by Gual (1999). He finds that higher competition tends to put pressure on banks to adjust lending rates quicker when money market rates are decreasing.”