IDEAS home Printed from
   My bibliography  Save this article

Do big banks have lower operating costs?



This study examines the relationship between bank holding company (BHC) size and components of noninterest expense (NIE) in order to shed light on the sources of scale economies in banking. Drawing on detailed expense information provided by U.S. banking firms in the memoranda of their regulatory filings, the authors find a robust negative relationship between size and normalized measures of NIE. The relationship is strongest for employee compensation expenses and components of ?other? noninterest expense such as information technology and corporate overhead expenses. In addition, the authors find no evidence that the inverse relationship between banking firm size and NIE ratios disappears above a given size threshold. In dollar terms, their estimates imply that for a BHC of mean size, an additional $1 billion in assets reduces noninterest expense by $1 million to $2 million per year, relative to a base case in which operating cost ratios are unrelated to size.

Suggested Citation

  • Anna Kovner & James Vickery & Lily Zhou, 2014. "Do big banks have lower operating costs?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-27.
  • Handle: RePEc:fip:fednep:00008

    Download full text from publisher

    File URL:
    File Function: Full text
    Download Restriction: no

    Other versions of this item:


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Joseph P. Hughes & Julapa Jagtiani & Loretta J. Mester, 2016. "Is Bigger Necessarily Better in Community Banking?," Working Papers (Old Series) 1615, Federal Reserve Bank of Cleveland.
    2. Gregory McKee & Albert Kagan, 2019. "The differential impact of the Dodd–Frank Act on niche non-metro lenders," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(4), pages 291-301, December.
    3. Kilian Huber, 2021. "Are Bigger Banks Better? Firm-Level Evidence from Germany," Journal of Political Economy, University of Chicago Press, vol. 129(7), pages 2023-2066.
    4. Sapci, Ayse & Miles, Bradley, 2019. "Bank size, returns to scale, and cost efficiency," Journal of Economics and Business, Elsevier, vol. 105(C).
    5. Hughes, Joseph P. & Jagtiani, Julapa & Mester, Loretta J. & Moon, Choon-Geol, 2019. "Does scale matter in community bank performance? Evidence obtained by applying several new measures of performance," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 471-499.
    6. Javed Ahmed & Christopher Anderson & Rebecca Zarutskie, 2015. "Are the Borrowing Costs of Large Financial Firms Unusual?," Working Papers 15-10, Office of Financial Research, US Department of the Treasury.
    7. Beverly Hirtle & Anna Kovner & Matthew Plosser, 2020. "The Impact of Supervision on Bank Performance," Journal of Finance, American Finance Association, vol. 75(5), pages 2765-2808, October.
    8. Philippon, Thomas, 2016. "The FinTech Opportunity," CEPR Discussion Papers 11409, C.E.P.R. Discussion Papers.
    9. Q. Farooq Akram & Casper Christophersen, 2017. "Pricing in the Norwegian Interbank Market – the Effects of Liquidity and Implicit Government Support," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(2), pages 165-204, April.
    10. Glass, Anthony J. & Kenjegaliev, Amangeldi & Kenjegalieva, Karligash, 2020. "Spatial scale and product mix economies in U.S. banking with simultaneous spillover regimes," European Journal of Operational Research, Elsevier, vol. 284(2), pages 693-711.
    11. W. Scott Frame & Ping McLemore & Atanas Mihov, 2020. "Haste Makes Waste: Banking Organization Growth and Operational Risk," Working Papers 2023, Federal Reserve Bank of Dallas.
    12. Ma, Chang & Nguyen, Xuan-Hai, 2021. "Too big to fail and optimal regulation," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 747-758.
    13. Thomas M. Eisenbach & David O. Lucca & Robert M. Townsend, 2016. "Resource Allocation in Bank Supervision: Trade-offs and Outcomes," Staff Reports 769, Federal Reserve Bank of New York.
    14. Coeuré, B., 2015. "Completing the single market in capital," Financial Stability Review, Banque de France, issue 19, pages 15-24, April.
    15. Bernadette A Minton & René M Stulz & Alvaro G Taboada, 2019. "Are the Largest Banks Valued More Highly?," Review of Financial Studies, Society for Financial Studies, vol. 32(12), pages 4604-4652.
    16. Timmer, Yannick & Pierri, Niccola, 2021. "The importance of technology in banking during a crisis," ESRB Working Paper Series 117, European Systemic Risk Board.
    17. Wang, Yang & Xiuping, Sui & Zhang, Qi, 2021. "Can fintech improve the efficiency of commercial banks? —An analysis based on big data," Research in International Business and Finance, Elsevier, vol. 55(C).
    18. Tijmen Daniels & Shahin Kamalodin, 2016. "The Return on Equity of Large Dutch Banks," DNB Occasional Studies 1405, Netherlands Central Bank, Research Department.
    19. Avgouleas, Emilios & Goodhart, Charles A, 2014. "A Critical Evaluation of Bail-in as a Bank Recapitalisation Mechanism," CEPR Discussion Papers 10065, C.E.P.R. Discussion Papers.

    More about this item


    banking; economies of scale; too-big-to-fail;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednep:00008. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.