Claessens, Demirguc-Kunt and Huizinga (1999) use 7,900 bank observations from 80 countries for the period 1988-1995 and examine the extent and effect of foreign presence in domestic banking markets. This data set includes all OECD countries, as well as many developing countries and economies in transition. They investigate how NIMs, overhead, taxes paid, and profitability differ between foreign and domestic banks. However, the authors do not derive the pure spread as we do in our study. They use information from the financial statements of domestic and foreign commercial banks from the BankScope database provided by IBCA. Coverage by IBCA is comprehensive, with banks included accounting for roughly 90 percent of the assets of banks in each country.<sup>4</sup> Saunders and Schumacher (2000) study the determinants of bank net interest margins in six selected European countries and the U.S. during the period 1988-1995 using a sample of 614 banks. They apply the model by Ho and Saunders (1981) to a multi-country setting and decompose bank margins into (i) a regulatory component<sup>5</sup> , (ii) a market structure component, and (iii) a risk premium component. The overall purpose of the paper by Saunders and Schumacher is to investigate the impact of the structure of bank competition and interest-rate volatility on interest margins in a sample of banks in seven major OECD countries over time. Data for these banks have been obtained in a standardized fashion from IBCA and the BankScope database.

The estimated spreads by Saunders and Schumacher (2000) vary widely across banks, both within and across countries. For example, in 1995 the mean NIM for the US (4.197 percent) is over twice that for Switzerland (1.732 percent). Moreover, the relative size of cross-country margins appears to change over time. For example, Spain had the highest NIMs over the period 1988–1992 before being superseded by the US during the period 1993–1995. They note the importance of the microdeterminants of spreads and compared them to macroeconomic determinants. The pure spreads are, importantly, comparable across countries according to Saunders and Schumacher (2000) since the same method is used to adjust the NIMs for institutional and regulatory factors.

Brock and Rojas Suarez (2000) explore the determinants of bank spreads in a systematic way for Argentina, Bolivia, Chile, Colombia, Mexico, Peru, and Uruguay during the mid-1990s. The methodology chosen by Brock and Rojas Suarez (2000) is similar to that of Saunders and Schumacher (2000) analyzing the behavior of bank spreads in Latin America based on bank-specific data. Since, in most cases, banks do not report the whole array of specific interest rates charged and paid, bank spreads are estimated from data in banks’ balance sheets and income statements in an effort to obtain the implicit loan and deposit rates offered by each individual bank.

> 4 The data are compiled by IBCA mostly from the balance sheet, income statement and applicable notes found in audited annual reports. Each country has its own data template which allows for differences in reporting and accounting conventions. These are converted to a “global format” which is a globally standardized template derived from the country-specific templates. The global format contains thirty six standard ratios which can be compared across banks and between countries. This is the most comprehensive data base that allows cross-country comparison. While the underlying data reflects international accounting standards as much as possible, and IBCA makes an effort to standardize individual bank data while converting to global format, some differences in accounting conventions regarding valuation of assets, loan loss provisioning, hidden reserves, etc., no doubt remain.

> 5 The regulatory components in the form of interest-rate restrictions on deposits, reserve requirements and capitalto-asset ratios have a significant impact on banks NIMs.

6