New evidence on returns to scale and product mix among U.S. commercial banks

David Wheelock and Paul Wilson

No 1997-003, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Numerous studies have found that banks exhaust scale economies at low levels of output, but most are based on the estimation of parametric cost functions which misrepresent bank cost. Here we avoid specification error by using nonparametric kernal regression techniques. We modify measures of scale and product mix economies introduced by Berger et al. (1987) to accommodate the nonparametric estimation approach, and estimate robust confidence intervals to assess the statistical significance of returns to scale. We find that banks experience increasing returns to scale up to approximately $500 million of assets, and essentially constant returns thereafter. We also find that minimum efficient scale has increased since 1985.

Keywords: Banks and banking; Banks and banking - Costs; Economies of scale (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (9)

Published in Journal of Monetary Economics, June 2001, 47(3), pp. 653-74

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DOI: 10.20955/wp.1997.003

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