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Cross Selling and Banking Efficiency

Luis M. B. Cabral
Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR)

João A. C. Santos
Federal Reserve Bank of New York


October 2001



Abstract:     
We show that efficiency is greater when financial institutions simultaneously offer different products, such as banking, insurance and investment banking (cross selling). Our results are based on the fact that offering multiple products improves the no-deviation constraints of the implicit contract established between a buyer and a seller in a world of one-sided or two-sided moral hazard. The results do not depend on cost synergies or efficiencies in information gathering (though these may imply greater economies from cross selling). Our analysis suggests that, when market competition is sufficiently intense and diseconomies of scope are not very significant, banks will only survive if they follow the strategy of cross selling.

Keywords: cross selling, commercial banking, investment banking, insurance

JEL Classifications: G21, G22, G24

Working Paper Series

Date posted: November 07, 2001 ; Last revised: April 24, 2008

Suggested Citation

Cabral, Luis M. B. and Santos, João A. C., Cross Selling and Banking Efficiency (October 2001). Available at SSRN: http://ssrn.com/abstract=289442 or doi:10.2139/ssrn.289442


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Contact Information

João A.C. Santos (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)
HOME PAGE: HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML
Luis M.B. Cabral
Leonard N. Stern School of Business - Department of Economics ( email )
269 Mercer Street
New York, NY 10003
United States
212-998-0858 (Phone)
212-998-4218 (Fax)
HOME PAGE: http://www.stern.nyu.edu/~lcabral
Centre for Economic Policy Research (CEPR)
90-98 Goswell Road
London EC1V 7RR United Kingdom
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