Intermediation spread, bank supervision, and financial stability
Author(s)
Date
2010Source Title
Review of Pacific Basin Financial Markets and Policies
Print ISSN
0219-0915
Publisher
World Scientific Publishing
Volume
13
Issue
4
Pages
517 - 537
Language
English
Type
ArticleItem Usage Stats
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Abstract
This paper models the effect of bank competition and deposit insurance premiums on the spread between lending and deposit rates. In developing economies, low spreads do not always indicate bank efficiency; they may be the result of high risk taking. This paper shows that imposing upper and lower limits on banks' spreads and adjusting deposit insurance premiums when violation of these limits occurs leads to a more stable but relatively large intermediation costs. In developing economies, such an outcome would be considered more desirable because it insulates existing financial intermediaries and investors against macroeconomic disturbances.
Keywords
Deposit marketFinancial stability
Insurance premium
Intermediation spread
Banking
Competition (economics)
Developing world
Financial market
Financial system
Insurance system
Macroeconomics