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

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  • Wheelock, David C.
  • Wilson, Paul W.

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 47 (2001)
Issue (Month): 3 (June)
Pages: 653-674

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Handle: RePEc:eee:moneco:v:47:y:2001:i:3:p:653-674

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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  15. Allen N. Berger & Gerald A. Hanweck & David B. Humphrey, 1986. "Competitive viability in banking: scale, scope, and product mix economies," Research Papers in Banking and Financial Economics 82, Board of Governors of the Federal Reserve System (U.S.).
  16. McAllister, Patrick H. & McManus, Douglas, 1993. "Resolving the scale efficiency puzzle in banking," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 389-405, April.
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