Are U.S. banks too large?

David Wheelock () and Paul Wilson

No 2009-054, Working Papers from Federal Reserve Bank of St. Louis

Abstract: The substantial consolidation of the U.S. banking industry since the mid-1980s has brought a large increase in average (and median) bank size, which along with concerns about banks that are "too-big-to-fail," has led many analysts to wonder whether banks are "too large." This paper presents new estimates of ray-scale and expansion-path scale economies for U.S. banks based on nonparametric, local linear estimation of a model of bank costs. We employ a dimension-reduction technique to reduce estimation error, and bootstrap methods for inference. Our estimates indicate that as recently as 2006, most U.S. banks faced increasing returns to scale, suggesting that industry consolidation and increasing scale are likely to continue unless checked by government intervention.

Keywords: Banks and banking; Economies of scale; Bank failures (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-eff and nep-reg
Date: 2009

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