Economies of integration in banking: an application of the survivor principle
AbstractDespite the growing concentration of U.S. banking assets in mega-banks, most academic research finds that scale and scope economies are small. I apply the survivor principle to the banking industry between 1984 and 2002 and find that the so-called economies of integration are significant. These results hold after accounting for off-balance- sheet activities and after replicating the results at the holding company level. Regression analysis reveals that deregulation of branching restrictions, especially at the state level, played a significant role in allowing banks to exploit these economies. The results also suggest that, although the absolute number of community banks will decrease over time, community banks of all sizes will remain viable in the future. A likely explanation for the paradox of significant economies of integration and small estimated cost economies is that the size benefits to a bank come from sources other than cost efficiencies.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Supervisory Policy Analysis Working Papers with number 2004-04.
Date of creation: 2004
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-23 (All new papers)
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