The big banks and their small banks: Market division for low-income credit holders and interest comparison within the conglomerates

Abstract

“Finance companies” (technically, credit, financing, and investment companies - SCFIs) coexist with large banks within economic conglomerates. Using historical series of interest rates, we tested the hypothesis that SCFIs belonging to banking groups and other subsidiary institutions (non-major banks) would focus on more vulnerable customers, who would accept to contract credit at higher interest rates than those practiced by large banks of the same group, in the same credit modalities. We conclude that our data capture evidence of the practice of higher interest rates by subsidiaries (SCFIs or subsidiary banks) comparing to the respective main banks, which may reflect the credit specialization in certain niche markets; however, we also find situations in which major banks charge higher interest rates than their subsidiaries. Furthermore, we present the main resolutions of the National Monetary Council (CMN) that regulate SCFIs and highlight the SCFIs' relationships with banks, banking correspondents, and franchises. Finally, we examine the equity profile of SCFIs according to the following categories: (i) financial institutions linked to one of the five major banks; (ii) financials linked to banking conglomerates, except those of the five major banks; (iii) financial institutions linked to non-banking economic groups; (iv) independent financial companies.