Risk, Concentration and Market Power in the Banking Industry: Evidence from the Colombian System (1997-2006)
CEDE Working Paper No. 2007-27
36 Pages Posted: 21 May 2009
Date Written: November 20, 2007
This paper examines the relationship between risk, concentration and the exercise of market power by banking institutions. We use monthly balance-sheet and interest rate data for the Colombian banking system from 1997 to 2006.The evidence shows that, in the face of high risk, banks transfer a larger share of risk to customers through higher intermediation margins. The result suggests that systemic risk acts as a “collusion” device for banks: while high concentration is not enough to have collusion, the true effects of high market concentration on interest rates’ mark-ups emerge when the system is under stress.
Keywords: Banking, market power, risk, concentration, intermediation margins
JEL Classification: g21, g34, g38, l11
Suggested Citation: Suggested Citation