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

Mohammed Amidu, Simon Wolfe

Research output: Contribution to journalArticlepeer-review

18 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)888-908
Number of pages21
JournalEuropean Journal of Finance
Volume19
Issue number9
DOIs
Publication statusPublished - Oct 2013
Externally publishedYes

Keywords

  • bank funding
  • bank market power
  • developing countries
  • net-interest margin

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