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Cross Selling and Banking Efficiency

19 Pages Posted: 7 Nov 2001  

Luis M. B. Cabral

New York University (NYU) - 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

Date Written: 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 Classification: G21, G22, G24

Suggested Citation

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

Luis M. B. Cabral

New York University (NYU) - 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)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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

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