Effect of banking concentration on the lending channel: Evidence from Colombia

This article aims to analyze the effect of monetary policy on the growth rate of total gross loans for the Colombian economy under different scenarios of banking concentration. The effect of monetary policy on the growth rate of loans was made by the two-step system GMM dynamic panel estimator over the period of 2007-2017. The findings denote that the monetary policy has the capacity to affect the growth rate of loans. Furthermore, the central bank loses degrees of freedom to affect the growth rate of bank loans in a greater concentration scenario and banks size mitigates the monetary policy shock. The results of the paper offer new insights about the monetary policy management for developing countries. The principal conclusion is it is necessary a closer monitoring in concentration and structure of the banking system by monetary policymakers. We thank an anonymous referee for helpful comments on an earlier version of this paper. Any remaining errors are the sole responsibility of the authors.