Banking Markets: Productivity, Risk and Customer Satisfaction
Wharton Financial Institutions Center Working Paper No. 95-14
Posted: 15 Jul 1998 Last revised: 23 May 2012
Date Written: May 1, 1995
A structural model is developed which incorporates bank decisions on productivity, risk taking and customer satisfaction into an equilibrium model of banking markets. This structural model is estimated directly for 219 large U.S. banks, 1984-1992. The results are: (i) banks differ widely in their ability to manage risk; (ii) there are substantial inefficiencies due to demand/capacity mismatches; (iii) greater customer satisfaction correlates with greater profitability, principally due to higher levels of demand; (iv) very large bank-specific effects that previous research discovered appear to have been largely captured in the structural model.
JEL Classification: G2
Suggested Citation: Suggested Citation