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Evidence on the objectives of bank managers

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Author Info

  • Joseph P. Hughes
  • Loretta J. Mester

Abstract

Analyzing data from the 1989 Survey of Consumer Finances, we find credit card borrowing is inversely correlated with a household’s willingness to comparison shop for loans and deposits. Households with larger balances have higher disutility of search, ceteris paribus. In addition, these households are more likely to be rejected or to be granted a lower-than-desired credit limit when applying for new credit, and so may find it difficult to switch from one card issuer to another. This partly explains the stickiness of card interest rates and why issuers enjoy above-average returns despite the industry’s competitive structure.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Proceedings with number 46.

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Length: 496-500
Date of creation: 1994
Date of revision:
Publication status: Published in Conference on Bank Structure and Competition (1994 : 30th)
Handle: RePEc:fip:fedhpr:46

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Related research

Keywords: Bank management ; Bank profits;

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References

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  1. Loretta J. Mester, 1990. "Traditional and nontraditional banking: an information-theoretic approach," Working Papers 90-3, Federal Reserve Bank of Philadelphia.
  2. Hannan, Timothy H & Hanweck, Gerald A, 1988. "Bank Insolvency Risk and the Market for Large Certificates of Deposit," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 20(2), pages 203-11, May.
  3. Hunter, William C & Timme, Stephen G & Yang, Won Keun, 1990. "An Examination of Cost Subadditivity and Multiproduct Production in Large U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 22(4), pages 504-25, November.
  4. Paul J. Gertler & Donald M. Waldman, 1990. "Quality Adjusted Cost Functions," NBER Working Papers 3567, National Bureau of Economic Research, Inc.
  5. Joseph P. Hughes & Loretta J. Mester, . "A Quality and Risk-Adjusted Cost Function for Banks: Evidence on the "Too-Big-To-Fail" Doctrine," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 25-92, Wharton School Rodney L. White Center for Financial Research.
  6. Mester, Loretta J., 1991. "Agency costs among savings and loans," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 1(3), pages 257-278, June.
  7. McAllister, Patrick H. & McManus, Douglas, 1993. "Resolving the scale efficiency puzzle in banking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 17(2-3), pages 389-405, April.
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Citations

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Cited by:
  1. Changchun Hua & Li-Gang Liu, 2010. "Risk-return Efficiency, Financial Distress Risk, and Bank Financial Strength Ratings," Finance Working Papers 22756, East Asian Bureau of Economic Research.
  2. Bris, Arturo & Cantale, Salvatore, 2004. "Bank capital requirements and managerial self-interest," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 44(1), pages 77-101, February.
  3. Li-Gang Liu & Changchun Hua, 2010. "Risk-return Efficiency, Financial Distress Risk, and Bank Financial Strength Ratings," Working Papers id:2944, eSocialSciences.

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