Allen, F., H. Gersbach, J. P. Krahnen; and A. Santomero, 2001, “Competition Among Banks: Introduction and Conference Overview,” European Finance Review, Vol. 5.
Bankscope, Fitch IBCA.
Beck, T., 2000, “Impediments to the Development and Efficiency of Financial Intermediation in Brazil,” World Bank Policy Research Working Paper 2382 (June).
Belaisch, A., L. Kodres, J. Levy, and A. Ubide, 2001, “Eurobanking at the Crossroads,” IMF Working Paper 01/28 (Washington: International Monetary Fund).
Coccorese, P., 1998, “Assessing the Competitive Conditions in the Italian Banking System: Some Empirical Evidence,” BNL Quarterly Review, No. 205 (June).
Ghosh A., and S. Ghosh, 1999, “East Asia in the Aftermath: Was There a Crunch?,” IMF Working Paper 99/38 (Washington: International Monetary Fund).
Instituto Brasileiro de Geografia e Estadisticas, 1997s, “Sistema Financeiro: Uma Análise a Partir das Contas Nacionais—1990/1995.”
The author would like to thank Lorenzo Pérez and Trevor Alleyne for useful comments, as well as Cornélio Farias Pimentel and Gilneu Astolfi Vivan in the Banking Supervision Department of the Central Bank of Brazil for their expert and always friendly help in understanding Brazilian banks balance sheets.
In this paper, the banking system refers only to universal banks, which are deposit-taking institutions able to provide loans and investment services to their clients. Purely investment banks are excluded, as are development banks, long-term credit institutions, leasing companies, and mortgage institutions.
See Belaisch et al. (2001) for a comparable analysis of the banking systems in the industrialized countries of the euro area.
The ratios reported in the paper may differ from official statistics. First, they are calculated using Bankscope, a database of balance sheets and income statements which covers only the larger banks in each country. Second, ratios have been recomputed to improve comparability by abstracting from tax and provision regimes, which are very country-specific. The order of magnitudes and ranking of the ratios are however generally in line with official statistics.
For more details on the respective performance of banks by size, see Banco Central do Brasil (1998).
Interest earned on bond holdings are classified separately as securities income, as is the standard accounting practice.
The figure reported by the Central Bank is slightly higher, at 5.8 percent for end-2000, since the Bankscope sample is biased toward large banks. This is presumably also the case for other Latin American countries in the sample, so that the comparative analysis of the ratios likely still holds across countries.
See Barajas and Steiner (2001) for a recent paper on this topic applied to Latin American countries. The paper also contains a review of the literature.
In this paper, both banks owned by the state governments as well as the federal government are referred to as state-owned banks, without distinction.
The relatively low rate of nonperforming loans in the data is consistent with the selection of “best” credits by banks.
The data comes from the COSIF database (Plano Contábil das Instituicões do Sistema Financeiro Nacional) of the central bank (BCB). The top 50 banks in the BCB classification include a development bank that is excluded from this analysis.
In fixed effect models, differences between pool members (here banks) are captured by a constant intercept term specific to each member. In random effect models, these differences are assumed to be random and estimated with the error term in the regression.
If the regressions are run for each year separately, the results also reject the hypothesis that Brazilian banks behave competitively. However the annual regressions cannot significantly differentiate between competitive and oligopolistic behavior in 1999.
As mentioned before, small- and medium-sized banks are those with asset size below R$5 billion or 0.5 percent of 2000 GDP. Banks above this asset size are considered large. There is always some arbitrariness in such a threshold, but this one also has the advantage of keeping a balanced number of banks in each asset class.