rad001 br An exposition of the main

An exposition of the main theoretical and empirical determinants of banking spreads The theoretical discussion about the banking firm has been predominantly presented by neoclassical intellectuals, and its origin refers to what Tobin (1963) conventionally called the “old vision” of the banking firm, where banks were seen as “a monopolistic entity and ‘quasi-technical’ currency creators” (Paula, 1999, p. 5), able to create money without limit, although this process is restricted by the legal reserve requirements imposed by the monetary authorities. In the “new vision”, the role of financial intermediaries becomes the simultaneous satisfaction of the portfolio preferences of two types of individuals or firms having, on one side, lenders, and on the other, the takers. In this new perspective, banks acted as risk neutral intermediaries and sought to minimize the costs associated with the risk of illiquidity and maximize profitability. From Tobin\'s (1963) theory of the banking firm came the modern neoclassical theory of the banking firm, whose main representative is the work of Klein (1971). The modern theory of the banking firm seeks to establish the role of market structure and rad001 within the structural relationships faced by commercial banks, treating them as rational agents in an environment of risk and uncertainty. His theory of the banking firm studies the process of determining the price charged for the services offered. On the role of structure and competition in the model, it is observed that three types of variables must be considered in the analysis of the fees that the bank offers to deposits. These are: the economic variables, the market structure and the degree of interbank competition. The banking spread reflects the degree of monopoly of the bank, therefore, is an increasing function of the degree of concentration of the banking sector as a whole (Silva et al., 2007). The theory of the banking firm evolved further with contributions from Ho and Saunders (1981), who introduced to this theory the role of macroeconomic aspects. In this approach, the bank is seen as a “mediator” – exchange deposits for loans – and this task is surrounded by uncertainty, since deposits tend to arrive at a different time from when the demands for loans are made. Thus, “the bank will demand a positive interest spread or fee as the price of providing immediacy of (depository and/or loan) service in face of the (transactions) uncertainty generated by asynchronous deposit supplies and loan demands” (Ho and Saunders, 1981, p. 583) and also by uncertainty about the rate of return on loans. The optimal mark-up for deposit and loan depends on four factors, according to Ho and Saunders (1981): (i) the degree of bank management risk aversion; (ii) the market structure in which the bank operates; (iii) the average size of bank transactions; and (iv) the variance of interest rates. However, for this approach of Ho and Saunders (1981), unlike in Klein (1971), the bank is not risk neutral, but averse to it and seeks to maximize the expected profit utility. Although Ho and Saunders (1981) have introduced in his theory the role of the market structure in which the bank operates, Bresnahan (1982) and Lau (1982) went further, presenting microeconomic factors related to competition in the banking sector as fundamental to understanding the behavior of bank spread. The theorem developed by Lau (1982) seeks to identify the degree of competitiveness through price and production data for the industry. In this model, the degree of competitiveness of an industry is a constant that ranges from zero (perfect competition) to one (monopoly). Bresnahan (1982) argues that oligopolistic solution can be estimated and identified by traditional econometric methods. All models with which they dealt had the market price and quantity determined by the intersection of the demand function with the supply function. The model developed by Panzar and Rosse (1987) follows the movement of the industrial organization literature, abandoning the traditional approach of Structure–Conduct–Performance and the treatment of market structure as endogenous, affected by the degree of competition among its participants (Martins, 2012) To Bikker and Haff (2000), “these New Empirical Industrial Organization approaches test competition and the use of market power, and stress the analysis of banks’ competitive conduct in the absence of structural measures” (Bikker and Haff, 2000, p. 17).