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

Schlueter, Tobias | Busch, Ramona | Sievers, Soenke | Hartmann-Wendels, Thomas

Credit and Capital Markets – Kredit und Kapital, Vol. 49 (2016), Iss. 1: pp. 93–125

2 Citations (CrossRef)

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Article Details

Author Details

Tobias Schlueter (corresponding author), University of Cologne, Department of Banking, Albertus Magnus Platz, 50923 Cologne, Germany, e-mail: tobias., tel.: +49 171 54 90 454; fax: +49 221 470 2305.

Ramona Busch, Deutsche Bundesbank, Financial Stability Department, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main.

Soenke Sievers, University of Paderborn, Department of International Accounting, Warburger Str. 100, 33098 Paderborn.

Thomas Hartmann-Wendels, University of Cologne, Department of Banking, Albertus Magnus Platz, 50923 Cologne, Germany.

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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.