Market Structure And Banking Production Economies: Evidence From The 1980s Deregulation (original) (raw)

Bank costs, structure, performance and regulation Evidence from the UK, 1981-1995

2001

Given the changes in the structure of the banking industry in the last two decades, the current study attempts to assess their impact on the costs and profits of UK banking industry, by use of a new data set covering the period 1981-1995. By utilising different methodologies we provide an insight into the robustness of the findings regarding different methodological specifications.

Cost and technical change: Effects from bank deregulation

Journal of Productivity Analysis, 1993

Banks were substantially deregulated during the 1980s. Interest costs rose faster than operating expenses (capital, labor) were reduced. As a result, measured technical change in banking was negative: it averaged-0.8% to-1.4% a year over 1977-88. Technical change was measured three different ways and for both equilibrium and disequilibrium factor input specifications. All three approaches-a standard time trend, an index approach, and shifts in cross-section cost functions-gave consistent results. These results were robust whether measured at the banking firm or office level, or at the cost frontier.

Scale and Scope Economies at Large Banks: Including Off-Balance Sheet Products and Regulatory Effects

This paper examines the impact of the risk-based capital (RBC) requirements on bank cost efficiencies. We take into consideration both on-and off-balance sheet (OBS) products and allow product mixes to differ across banks and to vary over time. Our empirical results suggest that the cost structures of large banks are significantly different during the pre-RBC and post-RBC periods. That is, the RBC change seemed to reduce the optimal bank size that achieves maximum scale and scope economies, so that some of the large banks that previously were efficient became too large and inefficient. The results suggest that regulations that encourage large banks to expand their production and product mixes any further will likely result in a less efficient banking industry. JEL classification: G21; G28

Financial Deregulation and Economies of Scale and Scope: Evidence from the Major Australian Banks

Asia-pacific Financial Markets, 2001

In this study a parametric approach employing a flexible translog functional model is used to estimate economies of scale and scope in the four major Australian banks (ANZ, NAB, CBA and WESTPAC). Two hypotheses are tested to determine whether bank economies of scale have changed and also whether economies of scope were exhausted following financial deregulation. The analysis reveals that there is evidence for a continuing difference in banks' economies of scale as a result of deregulation. The empirical evidence also suggests that economies of scope were not exhausted by financial deregulation. In addition, there is continuing evidence of considerable economies of scope in the four major banks. In other words, Australian banks have not fully embraced deregulation and adjusted their joint production in a cost efficient manner. Findings in this study indicate that further deregulation would create a more competitive and efficient banking environment in Australia.

The role of scope and scale economies in recent large bank mergers

1992

The recent mega-merger activity in the u.s. banking industry raises many issues. Most important is the question of whether these mergers result in more profitable banks. A review of the literature on cost savings due to economies of scope and scale suggests that only those savings from the diversification of risk are present. The savings due to this diversification are substantial, but we also need to look at other areas of cost savings. Theories such as the information hypothesis, the market-power hypothesis, the inefficient-management hypothesis, and the too big to fail theory lead us to believe that the merging of these banks can substantially reduce costs. If the recent mega banks prove to be profitable, we may see the average size of banks increase. This may also lead to the dominance of a few super-banks, those that have already begun this trend.