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

Oliver Vins and Michael Koetter

No 190, Working Paper Series: Finance and Accounting from Department of Finance, Goethe University Frankfurt am Main

Abstract: 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.

JEL-codes: E42 E52 E58 G21 G28 (search for similar items in EconPapers)
Date: 2008-11
New Economics Papers: this item is included in nep-ban, nep-com, nep-eff and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:fra:franaf:190

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