Munich Personal RePEc Archive

Bank efficiency and leasing in U.S.A. banking system

ANDRIAKOPOULOS, KONSTANTINOS and LADAS, AUGOUSTINOS and ANDRIAKOPOULOS, PANAGIOTIS (2020): Bank efficiency and leasing in U.S.A. banking system.

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This paper contributes to the literature on leasing and bank efficiency by examining whether the cost efficiency of banks depends on the leasing that banks offer. Indeed, banks improve their situation when they offer products that might be close substitutes such as lease and loans. In addition, the presence of transaction costs offers more costumers to those banks that provide more products to their customers. Similarly, banks can create profit opportunities offering the asset of leasing in low price exploiting their negotiating power. Moreover, leasing can alleviate information asymmetries issues that arise during loan procedure. Using stochastic frontier analysis for a sample of commercial and savings banks in USA for the years 2010–2017, we find that leasing positively affects cost efficiency. Significant variations among type of bank and microeconomic conditions appear to be present. By considering all CAMEL (Capital Adequacy, Asset Quality, Management, Earnings, and Liquidity) parameters we notice that banks’ financial strength affects cost efficiency. Some policy implications are derived based on the empirical evidence supporting a more robust banking system can be created as banks offer leasing to their costumers instead bank loans reducing their credit risk that they face when they want to finance potential profitable investment projects.

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