OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
Efficiency and Contestability in the Colombian Banking System
Despite progress in the past decade, financial markets in Colombia remain relatively small and shallow. In particular the banking system suffers high intermediation costs, which limit constrains access to finance by households and firms. This paper explores some of the causes behind these intermediation costs. An accounting decomposition of the lending-deposit spread suggests that the levels of contestability and efficiency are low. A more in-depth analysis using stochastic frontier and data envelopment analyses confirm that the efficiency of the Colombian commercial banking system is low compared to other emerging markets and OECD economies with similar levels of development. Furthermore, econometric estimates of market contestability support the hypothesis that contestability in Colombia is subpar. Finally, the paper also explores some of the potential determinants of efficiency and contestability for a sample of the 24 countries over the period 2004 – 2013. This Working Paper relates to the 2014 OECD Economic Survey of Colombia. (www.oecd.org/eco/surveys/economic-survey-colombia.htm)
Keywords: contestability, stochastic frontier analysis, banking system, efficiency, lending-deposit spread, Panzar-Rosse model, data envelopment analysis
G28: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: Government Policy and Regulation;
G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages;
D43: Microeconomics / Market Structure, Pricing, and Design / Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection