 OPTIMAL BANKING STRUCTURE: IMPLICATIONS FOR INTERSTATE BANKINGRichard W. Nelson Contemporary Economic Policy, 1988, vol. 6, issue 2, 13-23 Abstract: This paper assesses the implications for the banking industry of relaxing interstate branching prohibitions. Theoretical models suggest that the number, size distribution, and specialization of firms in an industry are determined so as to minimize costs of production. Analysis presented here shows that interstate branching prohibitions, or their removal, are likely to affect costs only if the “convenience” of office location is important and if significant economies of scale are associated with office expansion. These conditions apparently do not hold in either retail banking or wholesale banking. The paper concludes that productive efficiency alone will not force a major consolidation of the banking system when branching restrictions are eliminated. To the extent that a consolidation does occur, it likely will reflect factors not considered in our model. These factors include (1) possibilities for increased diversification with greater size, (2) scarce managerial resources, (3) managerial incentives to maximize the organization's size, and (4) demand for multi‐office banking. Date: 1988 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:coecpo:v:6:y:1988:i:2:p:13-23 Ordering information: This journal article can be ordered from Access Statistics for this article Contemporary Economic Policy is currently edited by Brad R. Humphreys More articles in Contemporary Economic Policy from Western Economic Association International Contact information at EDIRC. |
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