THE COMPARATIVE EFFICIENCY OF "GRUPO" AND FOREIGN CONTROLLED BANKS IN LATIN AMERICA

Abstract

Bank efficiency studies in Latin America document that foreign banks are more efficient than local banks, but they do not isolate the performance ofbanks that are a part ofbusiness groups ("Grupos "). We investigate the efficiency o f Grupos as compared to foreign banks and find that in the more economically free market o f Chile, Grupo banks are more efficient but find no significant difference in the less economically freemarketsofBrazilandMexico. Weattributeourfindingstoagencyissues,whichaffectbothforeignand Grupo banks causing inefficient resource usage in less economically free markets. In more economically free markets, we attribute differences to increased availability ofcapital.