Who Said Large Banks Don't Experience Scale Economies? Evidence from a Risk-Return-Driven Cost Function

Joseph Hughes and Loretta Mester

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: Earlier studies found little evidence of scale economies at large banks; later studies using data from the 1990s uncovered such evidence, providing a rationale for very large banks seen worldwide. Using more recent data, we estimate scale economies using two production models. The standard risk-neutral model finds little evidence of scale economies. The model using more general risk preferences and endogenous risk-taking finds large scale economies. We show that these economies are not driven by too-big-to-fail considerations. We evaluate the cost implications of breaking up the largest banks into banks of smaller size.

Keywords: banking; production (search for similar items in EconPapers)
JEL-codes: D20 D21 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2011-08-02
New Economics Papers: this item is included in nep-ban and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://www.sas.rutgers.edu/virtual/snde/wp/2011-27.pdf (application/pdf)

Related works:
Journal Article: Who said large banks don’t experience scale economies? Evidence from a risk-return-driven cost function (2013)
Working Paper: Who Said Large Banks Don't Experience Scale Economies? Evidence from a Risk-Return-Driven Cost Function (2013)
Working Paper: Who said large banks don’t experience scale economies? Evidence from a risk-return-driven cost function (2013)
Working Paper: Who Said Large Banks Don't Experience Scale Economies? Evidence from a Risk-Return-Driven Cost Function (2011)
Working Paper: Who said large banks don't experience scale economies? Evidence from a risk-return-driven cost function (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:201127

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