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This study examines the recent marked slowdown in bank credit to the private sector in Latin America. Based on the study of eight countries (Argentina, Bolivia, Brazil, Chile, Colombia, Peru, Mexico, and Venezuela), the magnitude of the slowdown is documented, comparing it to historical behavior and to slowdown episodes in other regions of the world. Second, changes in bank balance sheets are examined to determine whether the credit slowdown is merely a reflection of a slowdown in bank deposits, or whether the asset side has changed. Third, following an econometric disequilibrium approach used in recent studies of credit slowdowns in East Asia and Finland, the paper investigates possible causes for the slowdown in three countries: Colombia, Mexico, and Peru. While both supply and demand factors appear to have played key roles, their relative importance has varied across countries.

Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Monetary economics --- Banking --- Finance --- Financial services law & regulation --- Credit --- Bank credit --- Credit booms --- Loans --- Money --- Financial institutions --- Credit risk --- Financial regulation and supervision --- Banks and banking --- Financial risk management --- Mexico

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This paper examines the determinants of the high intermediation spread observed in the Colombian banking sector for over two decades. A reduced-form equation is estimated on the basis of a bank profit maximization model that permits a decomposition into operational costs, financial taxation, market power, and loan quality. Although the average spread did not change between the pre liberalization (1974-88) and post liberalization (1991-96) periods, its composition did, with market power being significantly reduced and the responsiveness to loan quality increased. Colombia’s progress in reducing operational costs and financial taxation and improving loan quality, will determine whether it can narrow the spread.

Banks and Banking --- Industries: Financial Services --- Interest Rates: Determination, Term Structure, and Effects --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Oligopoly and Other Imperfect Markets --- Banking --- Finance --- Nonperforming loans --- Commercial banks --- Loans --- Deposit rates --- Financial institutions --- Financial services --- State-owned banks --- Banks and banking --- Interest rates --- Colombia

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After building up foreign currency denominated (FC) liabilities over several years, Colombian firms might be vulnerable to a shift in external conditions. We undertake three empirical exercises to better understand these vulnerabilities. First, we identify the determinants of FC borrowing. Second, we investigate the implications for real activity, finding a balance sheet effect that transmits exchange rate fluctuations to investment and is asymmetric, much stronger for depreciations than for appreciations. Finally, we find that foreign exchange derivatives are not used solely for hedging, due in part to monetary authority intervention to smooth exchange rate volatility. However, a full explanation remains open for future research.

Accounting --- Banks and Banking --- Exports and Imports --- Foreign Exchange --- Investments: General --- Investment --- Capital --- Intangible Capital --- Capacity --- Public Administration --- Public Sector Accounting and Audits --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Trade: General --- Financial reporting, financial statements --- Financial services law & regulation --- International economics --- Macroeconomics --- Currency --- Foreign exchange --- Financial statements --- Hedging --- Exports --- Depreciation --- Exchange rates --- Public financial management (PFM) --- Financial regulation and supervision --- International trade --- National accounts --- Finance, Public --- Financial risk management --- Saving and investment --- Colombia