Who said large banks don't experience scale economies? Evidence from a risk-return-driven cost function

Joseph Hughes and Loretta Mester

No 11-27, Working Papers from Federal Reserve Bank of Philadelphia

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, the authors 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. The authors show that these economies are not driven by too-big-to-fail considerations. They evaluate the cost implications of breaking up the largest banks into banks of smaller size.

Keywords: Production (Economic theory); Risk; Systemic risk; Banks and banking (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ban and nep-eff
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Citations: View citations in EconPapers (7)

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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)
Working Paper: Who Said Large Banks Don't Experience Scale Economies? Evidence from a Risk-Return-Driven Cost Function (2013)
Working Paper: Who said large banks don’t experience scale economies? Evidence from a risk-return-driven cost function (2013)
Working Paper: Who Said Large Banks Don't Experience Scale Economies? Evidence from a Risk-Return-Driven Cost Function (2011)
Working Paper: Who Said Large Banks Don't Experience Scale Economies? Evidence from a Risk-Return-Driven Cost Function (2011)
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