Loretta J. Mester

Executive Vice President and Director of Research

Phone: (215) 574-3807
Fax: (215) 574-4303
Send an e-mail to Loretta J. Mester
Curriculum vitae

Concurrent Positions

Adjunct Professor of Finance, The Wharton School,
University of Pennsylvania
Fellow, Wharton Financial Institutions Center
Founding Member and Director, Financial Intermediation Research Society
Visiting Reserve Bank Officer, Division of Monetary Affairs, Board of Governors of the Federal Reserve System, August 2009-November 2009

Editorships

Associate Editor:

Journal of Financial Intermediation
Journal of Money, Credit, and Banking
Journal of Financial Services Research
Journal of Economics and Business
Research in Banking and Finance
Journal of Financial Stability

Editorial Board:

International Journal of Banking, Accounting, and Finance

Publications in Refereed Journals

"Central Bank Institutional Structure and Effective Central Banking: Cross-Country Empirical Evidence," with Iftekhar Hasan, Comparative Economic Studies , 50 (December 2008), pp. 620-645.
Published article: doi:10.1057/ces.2008.36
"Competitive Effects of Basel II on U.S. Bank Credit Card Lending," with William W. Lang and Todd A. Vermilyea, Journal of Financial Intermediation , 17 (October 2008), pp. 478-508.
Published article: doi:10.1016/j.jfi.2007.03.008
"Introduction to the Special Issue on Financing Community Reinvestment and Development," Journal of Economics and Business , 60 (January-February 2008), pp. 1-12.
Published article: doi:10.1016/j.jeconbus.2007.09.005
"Transactions Accounts and Loan Monitoring," with Leonard I. Nakamura and Micheline Renault, Review of Financial Studies , forthcoming.
"Switching Costs and Adverse Selection in the Market for Credit Cards: New Evidence," with Paul S. Calem and Michael B. Gordy, Journal of Banking and Finance , 30 (2006), pp. 1653-1685. Published article doi:10.1016/j.jbankfin.2005.09.012
"Credit Card Rates and Consumer Search," with Mitchell Berlin, Review of Financial Economics , 13 (2004), pp. 179-198. Published article: doi: 10.1016/j.rfe.2003.06.001
"Retail Credit Risk Management and Measurement: An Introduction to the Special Issue," with Mitchell Berlin, Journal of Banking and Finance , 28 (2004), pp. 721-725. Published article: doi:/10.1016/j.jbankfin.2003.10.003
"Explaining the Dramatic Changes in Performance of U.S. Banks: Technological Change, Deregulation, and Dynamic Changes in Competition," with Allen Berger, Journal of Financial Intermediation , 12 (2003), pp. 57-95. Published article: doi:10.1016/S1042-9573(02)00006-2
"Do Bankers Sacrifice Value to Build Empires? Managerial Incentives, Industry Consolidation, and Financial Performance," with Joseph P. Hughes, William W. Lang, Choon Geol Moon, and Michael Pagano, Journal of Banking and Finance , 27 (2003), pp. 417-447. Published article: doi:10.1016/S0378-4266(02)00385-0
"Lender Liability and Large Investors," with Mitchell Berlin, Journal of Financial Intermediation , 10 (2001), pp. 108-137. Published article: doi:10.1006/jfin.2001.0312
"Are Scale Economies in Banking Elusive or Illusive? Evidence Obtained by Incorporating Capital Structure and Risk-Taking into Models of Bank Production Checking Accounts and Bank Monitoring," with Joseph P. Hughes and Choon-Geol Moon, Journal of Banking and Finance , 25 (December 2001), pp. 2169-2208. Published article: doi:10.1016/S0378-4266(01)00190-X
"Introduction: Special Issue on the Banking and Finance Workshop," with Anthony Saunders, Journal of Financial Services Research , 19 (2001), pp. 93-97. Published article: doi: 10.1023/A:1011126514094
"Recovering Risky Technologies Using the Almost Ideal Demand System: An Application to U.S. Banks," with Joseph P. Hughes, William Lang, and Choon-Geol Moon, Journal of Financial Services Research , 18 (October 2000), pp. 5-27. Published article: doi:10.1023/A:1026554922476 The original publication is available at www.springerlink.com .
"Deposits and Relationship Lending," with Mitchell Berlin, Review of Financial Studies , 12 (Fall 1999), pp. 579-607. Published article: doi:10.1093/rfs/12.3.579
"The Dollars and Sense of Bank Consolidation," with Joseph P. Hughes, William Lang, and Choon-Geol Moon, Journal of Banking and Finance , 23 (February 1999), pp. 291-324.
Published article: doi:10.1016/S0378-4266(98)00088-0
"On the Profitability and Cost of Relationship Lending," with Mitchell Berlin, Journal of Banking and Finance , 22 (August 1998), pp. 873-897. Published article: doi:10.1016/S0378-4266(98)00033-8
"Intermediation and Vertical Integration," with Mitchell Berlin, Journal of Money, Credit, and Banking , 30 (August 1998), pp. 500-519. Published article: available via JSTOR
"Bank Capitalization and Cost: Evidence of Scale Economies in Risk Management and Signaling," with Joseph P. Hughes, Review of Economics and Statistics , 80 (May 1998), pp. 314-325. Published article: available via JSTOR
"Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?" with Allen N. Berger, Journal of Banking and Finance , 21 (July 1997), pp. 895-947.
Published article: doi:10.1016/S0378-4266(97)00010-1 . (Reprinted in Performance of Finance Institutions, Patrick T. Harker and Stavros A. Zenios, eds., Cambridge University Press: Cambridge, UK, 2000; The Regulation and Supervision of Banks, Maximilian J.B. Hall, ed., Edward Elgar: Cheltenham, UK, 2001).
"Measuring Efficiency at U.S. Banks: Accounting for Heterogeneity Is Important," European Journal of Operational Research , 98 (April 1997), pp. 230-242. Published article: doi:10.1016/S0377-2217(96)00344-X
"Efficient Banking Under Interstate Branching," with Joseph P. Hughes, William Lang, and Choon-Geol Moon, Journal of Money, Credit, and Banking , 28 (November 1996), pp. 1043-1071. Published article: available via JSTOR . (Reprinted in The Regulation and Supervision of Banks, Maximilian J.B. Hall, ed., Edward Elgar: Cheltenham, UK, 2001).
"A Study of Bank Efficiency Taking Into Account Risk-Preferences," Journal of Banking and Finance , 20 (July 1996), pp. 1025-1045. Published article: doi:10.1016/0378-4266(95)00047-X
"Consumer Behavior and the Stickiness of Credit Card Interest Rates," with Paul Calem, American Economic Review , 85 (December 1995), pp. 1327-1336. Published article: available via JSTOR
"When Does the Prime Rate Change?" with Anthony Saunders, Journal of Banking and Finance , 19 (August 1995), pp. 743-764. Published article: doi:10.1016/0378-4266(94)00090-P
"Comments on Borrower and Neighborhood Racial and Income Characteristics and Financial Institution Mortgage Application Screening," Journal of Real Estate Finance and Economics , 9 (November 1994), pp. 241-243. Published article: doi:10.1007/BF01099276 . The original publication is available at www.springerlink.com.
"A Positive Analysis of Bank Closure," with George J. Mailath, Journal of Financial Intermediation , 3 (June 1994), pp. 272-299. Published article: doi:10.1006/jfin.1994.1007
"Why Are Credit Card Rates Sticky?" Economic Theory , 4 (May 1994), pp. 505-530.
Published article: doi:10.1007/BF01213621 The original publication is available at www.springerlink.com
"Further Evidence Concerning Expense Preference and the Fed," Journal of Money, Credit, and Banking , 26 (February 1994), pp. 125-145. Published article: available via JSTOR
"A Quality and Risk-Adjusted Cost Function for Banks: Evidence on the ‘Too-Big-To-Fail’ Doctrine," with Joseph P. Hughes, Journal of Productivity Analysis , 4 (September 1993), pp. 293 315. Published article: doi:/10.1007/BF01073414. The original publication is available at www.springerlink.com . (Reprinted in The Regulation and Supervision of Banks, Maximilian J.B. Hall, ed., Edward Elgar: Cheltenham, UK, 2001).
"Comments on ‘Determinants of Bank Efficiency,’" Journal of Banking and Finance , 17 (April 1993), pp. 407-409. Published article: doi:10.1016/0378-4266(93)90040-K
"Efficiency in the Savings and Loan Industry," Journal of Banking and Finance , 17 (April 1993), pp. 267-286. Published article: doi:10.1016/0378-4266(93)90032-9
"Perpetual Signaling with Imperfectly Correlated Costs," The RAND Journal of Economics, 23 (Winter 1992) pp. 548-563.
"Debt Covenants and Renegotiation," with Mitchell Berlin, Journal of Financial Intermediation , 2 (June 1992) pp. 95-133. [Winner of the JFI Most Significant Paper Prize]. Published article: doi:10.1016/1042-9573(92)90005-X
"Traditional and Nontraditional Banking: An Information-Theoretic Approach," Journal of Banking and Finance , 16 (1992), pp. 545-566. Published article: doi:10.1016/0378-4266(92)90044-Z
"Agency Costs Among Savings and Loans," Journal of Financial Intermediation , 1 (June 1991), pp. 257 278. Published article: doi:10.1016/1042-9573(91)90010-W
"Viability in Multiproduct Industries," Economics Letters , 31 (December 1989), pp. 273 276.
Published article: doi:10.1016/0165-1765(89)90013-X
"Testing for Expense Preference Behavior: Mutual Versus Stock Savings and Loans," The RAND Journal of Economics, 20 (Winter 1989), pp. 483 498.
"Multiple Market Contact Between Savings and Loans," Journal of Money, Credit, and Banking , 19 (November 1987), pp. 538 549. Published article: available via JSTOR
"A Multiproduct Cost Study of Savings and Loans," Journal of Finance , 42 (June 1987), pp. 423 445. Published article: available via JSTOR from Blackwell-Synergy

Other Publications and Speeches

"Scale Economies in Banking and Financial Regulatory Reform", The Region, Federal Reserve Bank of Minneapolis, forthcoming.
"Comments on a New Metric for Banking Integration in Europe," in Europe and the Euro, NBER Research Book, University of Chicago Press: Chicago, eds. Alberto Alesina and Francesco Giavazzi, 2010 pp. 246-253.
"Central Bank Policies and Asset Prices," Keynote Address I, SUERF (The European Money and Finance Forum)/Bank of Finland Conference: Housing Markets - A Shelter from the Storm or Cause of the Storm," Helsinki, Finland, June 4, 2009.
"Efficiency in Banking: Theory and Evidence," with Joseph P. Hughes, invited chapter for Oxford Handbook of Banking, Oxford University Press: Oxford, UK, eds. Allen Berger, Philip Molyneux, and John Wilson, 2010, pp. 463-485.
"Optimal Industrial Structure in Banking," invited chapter for Handbook of Financial Intermediation, North Holland, ed. Arnoud Boot and Anjan Thakor, forthcoming.
"Magyar Nemzeti Bank Research Evaluation Report 2008," with László Halpern, National Bank of Hungary, March 2008.
"Some Thoughts on the Evolution of the Banking System and the Process of Financial Intermediation," Economic Review, Federal Reserve Bank of Atlanta, First and Second Quarters 2007, pp. 8-9.
"Working as a Research Economist at the Federal Reserve Bank of Philadelphia," invited article for the Symposium on Research Careers Outside of Academia, Newsletter of the Committee on the Status of Women in the Economics Profession (CSWEP), Spring/Summer 2006, pp. 8-9.
"Core Inflation as a Predictor of Total Inflation," with N. Neil K. Khettry, Research Rap - Special Report, Federal Reserve Bank of Philadelphia, April 26, 2006, pp. 1-20.
"Bank of Finland Research Evaluation Report 2004," with Philip R. Lane and Juuso VÃ¤limÃ¤ki, Bank of Finland, December 2004.
"Was Job Quality ‘Job One' in the Tri-State Region’s Economic Recovery?" with William Olney, Federal Reserve Bank of Philadelphia Regional Highlights, Special Issue, December 2004, pp. 1-25.
"Credit Scoring and Securitization of Small Business Loans: Discussion Comments," Business Access to Capital and Credit: A Federal Reserve System Research Conference, March 1999, pp. 650-62.
"Abstract of ‘Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions,’" Contemporary Finance Digest, 2 (Summer 1998), pp. 70-1.
"Comments on Part Five: Competitive Interpenetration: Banking, Commerce and Nonbank Activities," in Universal Banking: Financial System Design Reconsidered, A. Saunders and I. Walter, eds., Irwin: Chicago, 1996, pp. 541-49.
"The Real Reasons That Benefits of Teaser Rates May Be Short-Lived," with Paul Calem, Letters to the Editor, American Banker, April 25, 1994.
"Economies of Scale and Scope," in Financial Institutions Management: A Modern Perspective, by Anthony Saunders, Richard D. Irwin: Chicago, IL, 1994, p. 230; second edition, 1997, p. 265; third edition, 2002, p. 299.

Federal Reserve Bank of Philadelphia Business Review Articles

"Changes in the Use of Electronic Means of Payment: 1995-2007," Third Quarter 2009, pp. 29-37. (Reprinted as Table No. 1146 in the Statistical Abstract of the United States U.S. Census Bureau, 2010 and 2011.)
"Innovation and Regulation in Financial Markets: A Summary of the 2007 Philadelphia Fed Policy Forum," Third Quarter 2008, pp. 35-41.
"Financing Community Development: Learning from the Past, Looking to the Future," First Quarter 2008, pp. 34-50.
"Changes in the Use of Electronic Means of Payment: 1995-2004," Second Quarter 2006, pp. 26-30. (Reprinted as Table No. 1172 in the Statistical Abstract of the United States U.S. Census Bureau, 2007, 2008, and 2009.)
"Economic Growth and Development: Perspectives for Policymakers, A Summary of the 2006 Philadelphia Fed Policy Forum," Third Quarter 2007, pp. 30-39.
"Fiscal Imbalance: Problems, Solutions, and Implications, A Summary of the 2005 Philadelphia Fed Policy Forum," Third Quarter 2006, pp. 31-39.
"Challenges and Opportunities in a Global Economy: Perspectives on Outsourcing, Exchange Rates, and Free Trade, A Summary of the 2004 Philadelphia Fed Policy Forum," Third Quarter 2005, pp. 36-48.
"Managing the Recovery in Uncertain Times: A Summary of the 2003 Philadelphia Fed Policy Forum," Third Quarter 2004, pp. 44-56.
"Changes in the Use of Electronic Means of Payment: 1995-2001," Third Quarter 2003, p. 18-20. (Reprinted as Table No. 1186. "Percent of U.S. Households That Use Selected Payment Instruments: 1995 and 2001," in the Statistical Abstract of the United States, U.S. Census Bureau, 2003, pp. 750.)
"Crises, Contagion, and Coordination: A Summary of the 2002 Philadelphia Fed Policy Forum," Third Quarter 2003, pp. 8-15.
"The Philadelphia Fed Policy Forum: Three Questions for Monetary Policymakers," Third Quarter 2002, pp. 6-13.
"Is the Personal Bankruptcy System Bankrupt?" First Quarter 2002, pp. 31-44.
"A Summary of the Conference on Consumer Transactions and Credit," Third Quarter 2001, pp. 5-9.
"Changes in the Use of Electronic Means of Payment," Third Quarter 2001, pp. 10-12. (Reprinted as Table No. 1161. "Percent of U.S. Households That Use Selected Payment Instruments: 1995 and 1998" in the Statistical Abstract of the United States, U.S. Census Bureau, 2002, P. 727.)
"The Changing Nature of the Payments System: Should New Players Mean New Rules?" March/April 2000.
"Banking Industry Consolidation: What’s a Small Business to Do?" January/February 1999.
"What’s the Point of Credit Scoring?" September/October 1997. (Reprinted on the Public Affairs Information Service; in Frederic S. Mishkin, 1999 Readings to Accompany The Economics of Money, Banking, and Financial Markets, Fifth Edition, Addison Wesley Longman, Inc. 1999)
"Repealing Glass-Steagall: The Past Points the Way to the Future," July/August 1996.
"There's More Than One Way to Sell a Security: The Treasury's Auction Experiment," July/August 1995.
"How Efficient Are Third District Banks?" January/February 1994.
"Banking and Commerce: A Dangerous Liaison?" May/June 1992.
"Curing Our Ailing Deposit-Insurance System," September/October 1990.
"Owners versus Managers: Who Controls the Bank?" May/June 1989.
"Going, Going, Gone: Setting Prices with Auctions," March/April 1988.
"Production of Financial Services: Scale and Scope Economies," January/February 1987.

Current Working Papers and Manuscripts

"Regulatory Reform and the Role of the Fed," prepared for the Princeton Colloquium on Public and International Affairs: The "New Normal?" American Policy Making After the Great Recession. Princeton University, April 16-17, 2010.
"Large Capital Infusions, Investor Reactions, and the Return and Risk Performance of Financial Institutions in Normal Times and During the Recent Crisis," with Elvas Elyasiani and Michael S. Pagano. manuscript. March 2010.
"Core Measures of Inflation as Predictors of Total Inflation," with Theodore M. Crone, N. Neil K. Khettry, and Jason A. Novak, Working Paper 08-9, May 2008
"Central Bank Institutional Structure and Effective Central Banking: Cross-Country Empirical Evidence," Working Paper 08-5, April 2008
"Optimal Industrial Structure in Banking," Working Paper 08-2, January 2008
"Efficiency in Banking: Theory, Practice, and Evidence," with Joseph P. Hughes, Working Paper 08-1, January 2008
"Competitive Effects of Basel II on U.S. Bank Credit Card Lending," with William W. Lang and Todd A. Vermilyea, Working Paper 07-9, March 2007
"Applying Efficiency Measurement Techniques to Central Banks," Working Paper 03-13, July 2003.
"Optimal Financial Contracts for Large Investors: The Role of Lender Liability," with Mitchell Berlin, Working Paper 00-1, February 2000. Supersedes Working Paper 99-8.
"Efficiency and Productivity Change in the U.S. Commercial Banking Industry: A Comparison of the 1980s and 1990s," with Allen N. Berger, Working Paper 97-5/R, May 1997, revised November 1997.
"Recovering Technologies that Account for Generalized Managerial Preferences: An Application to Non-Risk-Neutral Banks," with Joseph P. Hughes, William Lang, and Choon-Geol Moon, Working Paper 95-8/R, August 1994, revised August 1996.

Research Interests and Work in Progress

Productive efficiency in financial institutions
Theory of financial intermediation
Agency problems in credit markets
Credit card pricing
Central bank governance
Core inflation