The Impact of Interbank and Public Debt Markets on the Competition for Bank Deposits

44 Pages Posted: 15 Nov 2013

Date Written: November 15, 2013

Abstract

The growth in the interest rates paid on Spanish public debt since 2008 and the impairment of the interbank market have generated concerns about their effects on competition for bank deposits in Spain. I combine a nested logit model of bank deposit supply with a structural model of competition to measure the impact of the reference interest rates on public debt and interbank markets on the returns on deposits and funding policy of Spanish banks in the period 2003-2010. The interbank rate is found to be more closely correlated with the return on deposits than the interest rate on public debt, but the connection between interbank rates and deposit returns is significantly weaker in the crisis period 2008-2010. Counterfactual analysis shows a significant effect of the interbank rate and investment opportunities in public debt on deposit rates and bank profits, and that observed deposit rates are on average 115bp above collusive levels.

Keywords: Bank Competition, Interbank Rates, Public Debt, Nested Logit, Counterfactual Analysis

JEL Classification: G21, D43, L1

Suggested Citation

Pérez Montes, Carlos, The Impact of Interbank and Public Debt Markets on the Competition for Bank Deposits (November 15, 2013). Banco de Espana Working Paper No. 1319, Available at SSRN: https://ssrn.com/abstract=2354886 or http://dx.doi.org/10.2139/ssrn.2354886

Carlos Pérez Montes (Contact Author)

Banco de España ( email )

Alcala 48
Madrid 28014
Spain

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