How do banks react to increased competition? Recent banking theory offers conflicting predictions about the impact of competition on bank orientation í L H the choice of relationship based versus transactional banking í DQG EDQN LQGXVWU \ VSHFLDOL]DWLRQ:H empirically investigate the impact of interbank competition on bank branch orientation and specialization. We employ a unique data set containing detailed information on bank-firm relationships and industry classification. We find that bank branches facing stiff local competition engage considerably more in relationship-based lending and specialize

This paper explores the impact of the euro on Latin America. We disregard both trade and changes in optimal debt strategies as important transmission channels. However, we present evidence suggesting that capital flows into and out of Latin America may be influenced by movements in European interest rates to a far greater extent than previously expected. We conclude with a discussion of the implication of the euro for the Latin American banking system. We argue that the euro will accelerate the internationalization of banking in Latin American creating potential solvency problems during the transition which should be addressed through a tightening of prudential regulation. # 2000 Elsevier Science B.V. All rights reserved.

How do banks react to increased interbank competition? Recent banking theory offers conflicting predictions about the impact of interbank competition on bank orientation - i.e., the choice of relationship based versus transactional banking - and bank industry specialization. We empirically investigate the impact of interbank competition on bank orientation and specialization. We employ a data set containing detailed information on bank-firm relationships and industry classification. We find that bank branches facing stiff local and multi-market competition engage relatively more frequently in relationship-based lending but specialize somewhat less in a particular industry. Keywords: bank orientation, bank industry specialization, competition, lending relationships. JEL: G21, L11, L14. I.

December 1999Cataloging-in-Publication data provided by the

Loan rates in Argentina are high. The objective of this work is to test if market power is one of the causes of these levels of interest rates and to measure its effects. For that purpose we work with data of the period 1994-1999. The tests indicate that there is market power in the peso operation sector and perfect competition can not be rejected in the dollar operation sector. We also find that there was no significant change in our measure of market power during the years we have analyzed. Loan rates in Argentina are high, in particular for operations in pesos. Our objective is to test if market power is one of the causes of these levels of lending rates. Two factors

Bank of International Settlements This paper defines current account crises as current account adjustments that occur in the aftermath of a sizable reduction in capital flows. We study the characteristics of such current account adjustments, particularly whether they are executed through export growth or import contraction. We find significant differences between Asia and Latin America, with Asian countries adjusting through export growth and Latin America through import contraction. When looking at the fundamentals that explain such dissimilar behavior, we conclude that these differences are attributable to differences in the degree of openness and financial dollarization with the size of the financial sector being irrelevant. We argue that the analysis allows the conclusion that “pesified ” financial sectors that insulate the domestic financial sector from exchange rate movements are better suited to deal with unstable international financial markets. 1 This paper was written while Sturzenegger visited the Bank of International Settlements. We thank

In recent years, Latin American banking sectors have experienced an accelerated process of consolidation that was accompanied by important increases in concentration and, in most cases, internationalization. This process, which in many cases was triggered by episodes of financial distress, has posed questions about its implications for the competitive behavior of banks, and for the approach that the supervisory bodies should adopt to balance financial stability considerations with the goal of fostering competition. Exploiting a rich balance sheet database for 7 Latin American countries, we examine the evolution of concentration and foreign penetration indicators and their impact on competition. We conclude that, at least at an aggregate level, there is no evidence that industry consolidation has led to a less competitive environment. While most Latin American banking sectors are far from the perfect competition benchmark, competition estimates do not differ from those computed for developed economies and have remained remarkably stable. Moreover, if anything, the evidence suggests that consolidation led to more rather than less competition in the sector. This may be due in part to the fact that, in