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Mortgage Loan Demand and Banks’ Operational Efficiency

Iosifidi, Maria and Panopoulou, Aikaterini and Tsoumas, Chris (2021) 'Mortgage Loan Demand and Banks’ Operational Efficiency.' Journal of Financial Stability, 53. ISSN 1572-3089

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Using data for 6,740 U.S. banks from 1996 to 2016, we consider whether mortgage loan demand is a key determinant of banks’ cost efficiency and management quality. We estimate mortgage loan demand from loan-level applications at individual banks, and we estimate bank efficiency and management quality score from banks’ structural models. In line with theoretical considerations around economies of scale, our results show that loan amount demand improves cost efficiency, but the number of loan applications reduces cost efficiency. In contrast, mortgage loan demand has an economically less significant effect on management quality score. We also find that loan demand is an important factor in shaping banks’ loan quality, above and beyond operational efficiency.

Item Type: Article
Uncontrolled Keywords: Banking; Mortgage loan demand; Cost efficiency; Management quality
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 30 Mar 2021 10:48
Last Modified: 30 Mar 2021 11:15

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