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

Bank efficiency studies in Latin America document that foreign banks are more efficient than local banks, but they do not isolate the performance of banks that are a part of business groups ("Grupos"). We investigate the efficiency of Grupos as compared to foreign banks and find that in the more economically free market of Chile, Grupo banks are more efficient but find no significant difference in the less economically free markets of Brazil and Mexico. We attribute our findings to agency issues, which affect both foreign and Grupo banks causing inefficient resource usage in less economically free markets. In more economically free markets, we attribute differences to increased availability of capital.