Deregulation and its Long-Run Effects on the Availability of Banking Services in Low-Income Communities

Abstract

Banking activities were highly regulated all around the world until the final decades of the last century. Traditionally, banks (1) were not allowed to use the competitive variables usually employed in other industries, such as prices or location. The existence of interest ceilings on credits and deposits, or the limitations to the opening of new banks or bank branches outside a reduced geographical area, substantially restricted competition within this sector. One of the possible consequences of this situation was that some banks operated branches in their local marketsöwhere they did not face limitations to the new openings öthat would not have been active in the absence of regulation. Given that price competition did not exist and that foreign (and sometimes even national) banks were not allowed to compete, those branches could have reached a reasonable level of profitability and remained in the market.As several scholars have argued, smaller banks were the main winners from regulation, given that they were protected from competition from larger and more efficient firms (Kroszner and Strahan, 1999). As the evidence from several banking markets shows, once branching restrictions were eliminated, the subsequent expansion process was led by the most efficient firms (Fuentelsaz and Go¨mez, 2001;Jayaratne and Strahan, 1997), with a reduction in the loan rates charged to creditors and an increase in the rates paid to depositors as a potential consequence. Therefore, the new competitive environment created by deregulation could be understood positively, as it would result in higher levels of competition, lower average prices, and benefits for consumers.However, this positive view of the effects of deregulation was soon complemented by a second line of research, which points to the risks associated with the elimination of restrictions. This second line of reasoning has suggested that deregulation and its associated phenomena (mergers, entry, and exit) could have had a perverse effect on the availability of banking services to specific social groups or to some geographic

Financial inclusion in Colombia: A scoping literature review

“…This relationship arises when inclusion policies create inclusion barriers that consequently generate financial exclusion (Beck & Demirguc-Kunt, 2008;Bernad et al, 2008;Datta, 2009;Demirguc-Kunt & Klapper, 2013;Fuller & Mellor, 2008;Horska et al, 2013;Rosengard & Prasetyantoko, 2011).…”

“…Credit union services aim at assisting the low-income population. This programme has been implemented in the UK, Spain, and Ireland (Bernad et al, 2008;Bryson & Buttle, 2005;Byrne et al, 2007;Devlin, 2009;Marron, 2013;McKillop et al, 2007;McKillop et al, 2011;Myers et al, 2012).…”

“…The fact that individuals excluded as a result of banks' preference for those clients with profitable income over the ones perceived as 'low-income' drives banks to engage exclusively with clients who are regarded as offering financial institutions profit opportunities (Midgley, 2005). Financial inclusion can be understood as the creation of financial sector policies that compel the creation of programmes to make banking services accessible to all (Bernad, Fuentelsaz & Gómez, 2008;Marshall, 2004). In addition, financial inclusion not only aims at providing access to banking services, but it also pursues the creation of monetary opportunities to reduce social inequality and poverty (Chibba, 2009).…”

Distribution orientation and driving mechanism of geographical pattern change of China’s banking industry

“…The number of branches in the poor areas was decreasing greatly, while in the rich areas it was still increasing (Avery, 1991;Caskey, 1994;Leyshon and Thrift, 1995). Relevant studies indicated that the change of the direction and strength of government as well as market forces are the causes of the spatial pattern change (Leyshon and Thrift, 1995;Marshall, 2004;Bernad et al, 2008). In the context of economic globalization and industrial structure supererogation (more relying on virtual economies like finance), developed countries have to implement the policy of financial deregulation and accelerate financial marketization and liberalization in order to enhance the efficiency and competitiveness of banking industry.…”

“…Therefore, the study on the spatial pattern of banking industry has become an important aspect of financial geography (Porteous, 1995;Martin, 1999). However, so far, the research on spatial pattern of banking industry has been mainly conducted in some developed countries such as the U.K. and the U.S.A. (Avery, 1991;Leyshon and Thrift, 1995;Bierman et al, 1996;Gunther, 1997;Fuller, 1998;Marshall, 2004;Bernad et al, 2008). Since the 1990s, the U.S.A., the U.K. and some other developed countries have closed a large amount of retail bank branches.…”