In this paper, I estimate the welfare loss associated to existing market power in the Colombian banking industry for the 1994 to 2014 period. With this aim I exploit a panel data set of official financial statements reported by banks to the “Superintendencia Financiera de Colombia” (SFC), Colombia’s financial regulatory agency. I rely on the “Stochas- tic Frontier Analysis” (SFA) estimation procedure proposed by Battese and Coelli (1995) to estimate banks’ marginal costs and assess welfare loss. This type of work has not been done for Colombia. I find that there is an increasing market power over time with an associated increase in welfare loss, with a maximum welfare loss of 1.4% of GDP in 2014 that represents around 6% of Colombia’s total government budget.
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