Neil B. Murphy

The Pricing of Bank Deposits: A Theoretical and Empirical Analysis

There has developed over the last several years a large and growing literature on the relationship between local bank market structure and performance. Two characteristics of this development are particularly notable. First, a carefully structured microeconomic model of the banking firm is rarely used as the starting point of the analysis. Secondly, the possibility that local market structure may have a differential impact on bank performance in different activities seems to have escaped systematic investigation. Specifically, it is a contention of this study that an empirical investigation of structure and performance in banking must be grounded in the explicit development of a microeconomic model of the banking firm.

A Reestimation of the Benston-Bell-Murphy Cost Functions for a Larger Sample with Greater Size and Geographic Dispersion

In this paper, the models utilized in earlier studies were applied to a larger sample with greater size and geographic dispersion. For those functions that account for the largest proportions of direct operating cost and employment, the scale coefficients increased from 1965 to 1968 so that they were not significantly different from unity. For activities requiring more skilled human resources than the “factory” operations of the typical bank, there were significant economies of scale of magnitudes similar to those in the 1965 Northeast sample. A test of overall scale economies assuming proportional expansion of all facilities showed a decrease in scale economies since 1965.

INTEREST RATE CEILINGS AND CONSUMER CREDIT RATIONING: A MULTIVARIATE ANALYSIS OF A SURVEY OF BORROWERS*

One of the principal conclusions of the National Commission on Consumer Finance [13, 128, 136] is that the imposition of interest rate ceilings on consumer loans results in a reduction in loan supply with otherwise creditworthy borrowers being rationed out of the market. Furthermore, the Commission suggests that industry practice and legal constraints such as differential rate ceilings may lead the various types of lenders to specialize and segment the market according to risk class of customer.

A Test of the Impact of Branching on Deposit Variability

Deposit variability in banking has received substantial attention in recent empirical studies [1], [2], [3], [4], [5], and [7], Most of these efforts have been cross-section analyses of the determinants of variability. However, the impact of branching on deposit variability has not been tested in any of these studies. Wacht suggests that branching could reduce deposit variability substantially, especially if geographical dispersion could be achieved through relaxing interstate restrictions on branching [6]. In this paper, Wachts suggestions will be subject to empirical testing for one thrift institution located in a major eastern metropolitan area. In Section I, the test methodology is presented. Data sources and empirical results are discussed in Section II, while the study is summarized and the implications for future research are discussed in Section III.

Evaluating Liquidity Under Conditions of Uncertainty in Mutual Savings Banks

Current conditions in the money and credit markets, along with the memory of the “crunch†of late 1966, have caused both the managers of financial institutions and their regulators to reconsider their concepts of “liquidity.†Both Minsky and Ritter have argued forcefully that traditional attention paid to balance sheet proportions should be abandoned in favor of an intertemporal analysis of cash flows [6], [7], and [8]. Ritter states that: “With a multidimensional cash flow forecast extending several years into the future, probability estimates can be made regarding potential liquidity needs over time†[8]. The purpose of this paper is to suggest a forecasting method which explicitly deals with the problem of uncertainty. The method is specifically designed for a mutual savings bank, but it could easily be adapted for a savings and loan association and, with perhaps greater effort, a commercial bank.2 In Section I, components of cash inflows and outflows are examined with the general objective of classification according to: (1) degree of uncertainty and (2) degree of management control. A risk analysis simulation model which permits explicit consideration of uncertainty is presented in Section II. Problems of implementing the model are discussed in Section III, while the implications of the analysis for future research are considered in Section IV.

A Note on Evaluating Liquidity under Conditions of Uncertainty in Mutual Savings Banks

In this paper, a risk-analysis simulation procedure was utiliijed to incorporate both a cash-flow liquidity concept and uncertainty in a liquidity-planning simulation model. The components of cash flow were specified. The model was implemented with the assistance of a large savings bank. The results indicate that a substantial dispersion in probable outcomes exists, from a

Economies of Scale and Division of Labor in Commercial Banking

1 million outflow to

Impact of Market Structure on the Price of a Commercial Banking Service

10 million inflow. The expected net flow,

The Effect of Technology on Bank Economies of Scale for Demand Deposits

5 million, greatly exceeds the point estimate derived by simply summing the individual point estimates. In fact, there is a 50 percent chance that the net flow will exceed the point estimate by more than

The Impact of Computers on Banking.

1.5 million. Such results from the liquidity planning model clearly give the banker a basis for determining the adequacy of his present liquidity position and therefore his cash management policy, as well as the optimum strategy in terms of various adjustment policies.