Banking competition in the Brazilian economy

Abstract: This paper applies the Panzar-Rosse model to assess the level of competition in the Brazilian banking sector. The sample covers 62 banks in the period from July 1994 to February 2012. Special attention is paid to the presence of scale variables in the regression, the existence of seasonal components in the financial time series, and the normalization of the price of banking inputs. The inclusion of scale variables in the model and the presence of seasonality in the data tend to erroneously indicate a competitive market structure. Contrary to the literature, in the seasonally-adjusted model without scale variables, the H-statistics indicates that banks in general and specific subgroups are non-competitive in the market. While large banks have high market power, public banks have intermediary market power, compatible with the various kinds of political interference in their management decisions.