The Impact of a Single Currency on the Loan Pricing Behaviors for Commercial Banks

The purposes of this paper are to develop loan-pricing models with operational cots of commercial banks under risks theoretically and empirically and to show their applications in investigating the impacts of EMU on the loan pricing behaviors of French banks. Our empirical result shows that the variables of operational costs, like the variables of risks, are the important components of loan price and have significant impact on loan prices. Ignorance of operational loan costs will seriously bias the analysis of loan pricing. Our results also show that the pricing behaviors of commercial banks are changed significantly after EMU. While the impact on loan price from costs of intermediation decreased, the impact from risks of intermediation increased after the adoption of single currency. In addition to the internal change in pricing behaviors by banks themselves, the external decreases in loan demand and the elimination of exchange rate risk may also explain why French banks price loan rate lower after EMU