The 'quiet life hypothesis (QLH)' posits that banks enjoy the advantages of market power in terms of foregone revenues or cost savings. We suggest a unied approach to measure competition and eciency simultaneously to test this hypothesis. We estimate bank-specic Lerner indices as measures of competition and test if cost and prot eciency are negatively related to market power in the case of German savings banks. We nd that both market power and average revenues declined among these banks between 1996 and 2006. While we nd clear evidence supporting the QLH, estimated eects of the QLH are small from an economical perspective.

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