Do big banks have lower operating costs?
James Vickery () and
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Lily Zhou: Sciences Po
Journal of Financial Perspectives, 2015, vol. 3, issue 1, 157-196
We examine the relationship between bank holding company (BHC) size and components of non-interest expense (NIE), in order to shed light on the sources of scale economies in banking. Drawing on detailed expense information provided by U.S. banking firms in the memoranda of their regulatory filings, we find a robust negative relationship between size and normalized measures of NIE. The relationship is strongest for employee compensation expenses and components of “other” NIE, such as information technology and corporate overhead expenses. In addition, the authors find no evidence that the inverse relationship between banking firm size and NIE ratios disappears above a given size threshold. In dollar terms, their estimates imply that for a BHC of mean size, an additional U.S.$1 billion in assets reduces NIE by U.S.$1 million to U.S.$2 million per year, relative to a base case where operating cost ratios are unrelated to size.
Keywords: Banking; regulations (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
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Journal Article: Do big banks have lower operating costs? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofipe:0064
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