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Do Big Banks Have Lower Operating Costs?

James Vickery, Lily Zhou and Anna Kovner
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Anna Kovner: Harvard University

No 201404325a, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Despite recent financial reforms, there is still widespread concern that large banking firms remain ?too big to fail.? As a solution, some reformers advocate capping the size of the largest banking firms. One consideration, however, is that while early literature found limited evidence for economies of scale, recent academic research has found evidence of scale economies in banking, even for the largest banking firms, implying that such caps could impose real costs on the economy. In our contribution to the volume on large and complex banks, we extend this line of research by studying the relationship between bank holding company (BHC) size and components of noninterest expense, in order to shed light on the sources of the scale economies identified in previous literature.

Keywords: too big to fail; bank size; economies of scale (search for similar items in EconPapers)
JEL-codes: G2 G3 (search for similar items in EconPapers)
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