Abstract
A structural model is developed which incorporates bank decisions on productivity, risk-taking, and customer satisfaction into an equilibrium model of banking markets. This structural model is estimated directly for 219 large US banks, 1984-1992. The results are: (i) banks differ widely in their ability to manage risk; larger banks take on relatively more risk; (ii) there are substantial inefficiencies due to demand/capacity mismatches; (iii) greater customer satisfaction correlates with greater profitability, principally due to higher levels of demand; (iv) very large bank-specific effects that previous research discovered appear to have been largely captured in the structural model.
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