Benchmarking Costs of Financial Intermediation around the World

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Bank Risk Determinants in Latin America

“…This finding was also reported by Rojas-Suarez (2001) in her analysis of financial indicators in emerging markets, where she highlights that neither profitability ratio nor the cost ratio are useful indicators for discerning between strong and weak banks in developing countries. These results show that the banks across this region have a specific idiosyncrasy regarding costs, since financial intermediation expenses in the region are particularly high (Calice and Zhou 2018).…”

Relationship among cost of financial intermediation, risk, and efficiency: Empirical evidence from Bangladeshi commercial banks

“…The study conducted by Stiglitz and Weiss (1981) found that credit rationing is prioritized for a higher cost of financial intermediation results in a lower level of credit grant to borrowers. The cost of financial intermediation is higher for lower-income countries (Calice & Zhou, 2018), and hence the lower intermediation spread is driven as a causal factor for financial development. The study found similar results concerning the cost of financial intermediation, which is negatively associated with bank risk and cost-efficiency.…”

Bank Lending Rates and Spreads in Emdes : Evolution, Drivers, and Policies

“…1. Operational costs: Staff and administrative costs are transferred to borrowers and depositors and typically form the largest component in lending rates and spreads (De la Torre Poghosyan, 2012;Calice and Zhou, 2018). Operational costs are typically lower in larger banking systems, which initially have more capacity to generate economies of scale, and in a favorable business environment which, inter alia, allows for more accurate borrower screening, better contract enforcement, and higher collateral recovery.…”

“…3. Quasi-taxes: Monetary and macro-prudential policy instruments such as (not fully) remunerated reserves and counter-cyclical capital buffers represent a regulatory cost for banks (Brock and Rojas, 2000;Saunders and Schumacher, 2000;Gelos, 2006;De la Torre et al, 2006;Calice and Zhou, 2018). Moreover, directed lending and interest subsidy programs, interest rate restrictions, and other "financial repression"-type tools affect rates and spreads.…”

“…positively associated with interest rates and spreads: the banking sector faces larger expected losses when engaged in larger operations, for a given credit and market risk (Ho and Saunders, 1981;Maudos and Solis, 2009;Calice and Zhou, 2018). Another hypothesis is that the coefficient is capturing the relationship between lending interest rates and the cyclical part of lending to the private sector (as the country effects included in the regression capture structural elements of the variable).…”