Institutions, Economic Development and Early Banking in Latin America

This book analyzes the factors that affected the development of the banking sector in Latin America from 1850 to 1930. One of the most striking features of Latin America during this period was the very limited extent of banking development. Perhaps the most common explanation for some Latin American countries is that restrictive bank laws established high barriers to entry and discouraged the formation of banks and the provision of banking services. In this book, however, I show that liberal bank laws did not necessarily lead to highly developed banking systems, and that a low demand for banking services was a significant cause for the stunted development of the banking sector in most of Latin America during this era. Using annual data for seven Latin American countries for this period, I find that the long-run supply of banking services largely responded to changes in the demand for banking services. Country-case studies for Argentina and Peru strongly support these findings. In these two countries, the banking sector responded to the demand for banking sector by opening bank offices and providing banking services in response to positive demand shocks.