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

Joseph Hughes () and Loretta Mester

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

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.

JEL-codes: D20 D21 G21 L23 (search for similar items in EconPapers)
Date: 2011-07
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Related works:
Journal Article: Who said large banks don’t experience scale economies? Evidence from a risk-return-driven cost function (2013) Downloads
Working Paper: Who Said Large Banks Don't Experience Scale Economies? Evidence from a Risk-Return-Driven Cost Function (2013) Downloads
Working Paper: Who said large banks don’t experience scale economies? Evidence from a risk-return-driven cost function (2013) Downloads
Working Paper: Who said large banks don't experience scale economies? Evidence from a risk-return-driven cost function (2011) Downloads
Working Paper: Who Said Large Banks Don't Experience Scale Economies? Evidence from a Risk-Return-Driven Cost Function (2011) Downloads
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