Why So High? Understanding Interest Rate Spreads in Latin America

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CODE: B-125
EDITOR(s): Brock, Philip , Rojas-Suárez, Liliana
PUBLISHED: June 2000



Financial liberalization has not lived up to expectations, at least as far as interest rate spreads are concerned. Over the past decade, many countries in Latin America and the Caribbean have reformed their financial sectors and reaped major economic benefits as a result. However, the persistence of high interest rate spreads -the difference between the interest charged to borrowers and the rate paid to depositors - has been a disquieting outcome of the reforms. Why So High? presents the first systematic analysis of the micro-and macroeconomic determinants of bank spreads across countries in Latin America. What has been the trend in bank spreads during the 1990s and how has financial liberalization contributed to this trend? How well do competing theories of interest rate spreads in industrial countries perform when applied to Latin America? What can policymakers do to promote the convergence of interest rate spreads to international levels? These are important questions addressed by this book.

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