Evidence on the Objectives of Bank Managers
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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- Mester, Loretta J., 1992.
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Rodney L. White Center for Financial Research Working Papers
25-92, Wharton School Rodney L. White Center for Financial Research.
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