Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/234690 
Year of Publication: 
2020
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-1104
Publisher: 
Inter-American Development Bank (IDB), Washington, DC
Abstract: 
This paper studies the links between competition in the lending market and spreads of bank loans in Brazil. Evidence from a dataset of more than 13 million loan-level observations from private banks shows a positive relationship between market power, measured by the Lerner index, and the cost of finance, measured by spreads over the treasury curve. Furthermore, there is evidence of the holdup problem, originating from informational switching costs faced by firms. Private banks engage in a strategy of first competing fiercely for clients by offering a lower loan interest rate and later increasing interest rates as the bank-firm relationship duration increases. Both results are stronger for micro and small firms than for medium and large firms.
Subjects: 
Banking
Competition
Switching costs
Information asymmetry
Holdup problem
Lock-in
JEL: 
D43
G21
L10
L14
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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