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The Quiet Life Hypothesis in Banking - Evidence from German Savings Banks

  • Oliver Vins
  • Michael Koetter

The "quiet life hypothesis (QLH)" posits that banks enjoy the advantages of market power in terms of foregone revenues or cost savings. We suggest a unied approach to measure competition and efficiency simultaneously to test this hypothesis. We estimate bank-specific Lerner indices as measures of competition and test if cost and profitt efficiency are negatively related to market power in the case of German savings banks. We find that both market power and average revenues declined among these banks between 1996 and 2006. While we find clear evidence supporting the QLH, estimated effects of the QLH are small from an economical perspective.

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Paper provided by Department of Finance, Goethe University Frankfurt am Main in its series Working Paper Series: Finance and Accounting with number 190.

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Date of creation: Nov 2008
Date of revision:
Handle: RePEc:fra:franaf:190
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