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The impact of market power and funding strategy on bank-interest margins

The impact of market power and funding strategy on bank-interest margins
The impact of market power and funding strategy on bank-interest margins
This paper investigates the implications of market power and funding strategies for bank interest margins using a sample of 978 banks in 55 emerging and developing countries over an eight year period, 2000-2007. We provide additional insight by examining the complex interlocking of three key variables that are important for regulators: the degree of market power, funding sources and bank performance. The results show that market power increases when banks use internal funding to diversify into non-interest income generating activities. We also find that the high net-interest margins of banks in emerging and developing countries can be explained by the degree of market power, credit risk and implicit interest payments. In addition, our results suggest that interest margins among banks with market power are significantly more sensitive to internally generated funds than they are to deposit and wholesale funding
1351-847X
1-21
Wolfe, Simon
9a2367fc-36cc-496a-bbd2-e7346bcbb19e
Amidu, Mohammed
84e5194f-4087-4dd4-b009-89bbd2dfdb3f
Wolfe, Simon
9a2367fc-36cc-496a-bbd2-e7346bcbb19e
Amidu, Mohammed
84e5194f-4087-4dd4-b009-89bbd2dfdb3f

Wolfe, Simon and Amidu, Mohammed (2012) The impact of market power and funding strategy on bank-interest margins. European Journal of Finance, 1-21. (doi:10.1080/1351847X.2011.636833).

Record type: Article

Abstract

This paper investigates the implications of market power and funding strategies for bank interest margins using a sample of 978 banks in 55 emerging and developing countries over an eight year period, 2000-2007. We provide additional insight by examining the complex interlocking of three key variables that are important for regulators: the degree of market power, funding sources and bank performance. The results show that market power increases when banks use internal funding to diversify into non-interest income generating activities. We also find that the high net-interest margins of banks in emerging and developing countries can be explained by the degree of market power, credit risk and implicit interest payments. In addition, our results suggest that interest margins among banks with market power are significantly more sensitive to internally generated funds than they are to deposit and wholesale funding

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e-pub ahead of print date: 17 January 2012
Organisations: Southampton Business School

Identifiers

Local EPrints ID: 347148
URI: http://eprints.soton.ac.uk/id/eprint/347148
ISSN: 1351-847X
PURE UUID: 1f1fd697-e1fd-4325-ae37-53511d9df441
ORCID for Simon Wolfe: ORCID iD orcid.org/0000-0001-9815-9535

Catalogue record

Date deposited: 17 Jan 2013 14:55
Last modified: 19 Nov 2019 02:00

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