Loan Pricing: Do Borrowers Benefit from Cost-Efficient Banking?

Abstract This study examines the loan-pricing behavior of German banks for a large variety of retail and corporate loan products. We find that a bank's operational efficiency is priced in bank loan rates and alters interest-setting behavior. Specifically, we establish that a higher degree of op...

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Bibliographic Details
Published inCredit and capital markets (Berlin) Vol. 49; no. 1; pp. 93 - 125
Main Authors Schlueter, Tobias, Busch, Ramona, Sievers, Soenke, Hartmann-Wendels, Thomas
Format Journal Article
LanguageGerman
English
Published Berlin Duncker & Humblot 2016
Duncker & Humblot Gmbh
Subjects
Accounting
bank efficiency
Banking industry
Banks
Capital markets
cost efficiency
Customers
Efficiency
error correction models
Funding
interest rate pass-through models
Interest rates
Operating costs
Prices
stochastic frontier analysis
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Summary:Abstract This study examines the loan-pricing behavior of German banks for a large variety of retail and corporate loan products. We find that a bank's operational efficiency is priced in bank loan rates and alters interest-setting behavior. Specifically, we establish that a higher degree of operational efficiency leads to lower loan markups, which makes prices more competitive and smoothes the setting of interest rates. By employing state-of-the-art stochastic frontier efficiency measures to capture a bank's operational efficiency, we take a look at the bank customers' perspective and demonstrate the extent to which borrowers benefit from cost-efficient banking. Kreditkonditionierung: Haben Kreditnehmer kosteneffizienter Banken Vorteile? Zusammenfassung Diese Studie untersucht den Einfluss der Kosteneffizienz bei der Preisbestimmung von Krediten auf Basis einer großen Vielfalt von Kreditprodukten deutscher Banken. Obwohl theoretische Studien die Weitergabe von Kostenvorteilen an Kunden (zumindest teilweise) vermuten, ist die internationale empirische Evidenz hierzu nicht einheitlich. Unsere Resultate zeigen, dass unter Anwendung von modernen Verfahren zur Effizienzmessung von Banken Kreditnehmer in zweifacher Hinsicht von Kosteneffizienz profitieren: a) Preisaufschläge bzw. Margen auf das Marktzinsniveau fallen geringer aus und b) Kreditkonditionen sind weniger volatil. JEL Classification: G21, G28
ISSN:2199-1227
2199-1235
2199-1235
DOI:10.3790/ccm.49.1.93