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The currency board arrangement and widespread dollarization of the Argentine economy since 1991 have laid the basis for domestic interest rates to converge to international levels. Although such a convergence has been observed for interest rates on bank deposits, interest rates on bank lending remain well above industrial country levels. This paper examines the causes of high intermediation spreads in Argentina using a dual currency model of the banking industry, which incorporates key features of credit markets in that country. Empirical results allow inferences to be drawn on the effects of macroeconomic and financial policies on bank lending and interest rates.

Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banking --- Monetary economics --- Finance --- Financial services law & regulation --- Currencies --- Loans --- Exchange rate risk --- Bank credit --- Financial institutions --- Money --- Financial regulation and supervision --- Commercial banks --- Banks and banking --- Financial risk management --- Credit --- Argentina