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An Empirical Investigation of Changes in Scale Economies for the Commercial Banking Firm, 1979-1986

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  • Gropper, Daniel M

Abstract

The period of the 1980s represents a particularly turbulent time for the banking industry. A number of technological and regulatory changes have occurred, including the elimination of Regulation Q which had limited the explicit interest payments that banks could pay on some types of deposits. It would be expected that these changes would affect the structure of costs for banks. The behavior of the cost function is studied over the 1979-1986 time period, and in contrast to previous studies using earlier data, increasing economies of scale are found in the later years for banks in both unit and branch banking states. These results indicate that there may be increased cost pressure for smaller banks to become larger, either through mergers and acquisitions or through internal growth. This may lead to further consolidation pressures within the industry, and reductions in the overall number of banking firms. Copyright 1991 by Ohio State University Press.

Suggested Citation

  • Gropper, Daniel M, 1991. "An Empirical Investigation of Changes in Scale Economies for the Commercial Banking Firm, 1979-1986," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 718-727, November.
  • Handle: RePEc:mcb:jmoncb:v:23:y:1991:i:4:p:718-27
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    Cited by:

    1. Jon Breslaw & James McIntosh, 1997. "Scale Efficiency in Canadian Trust Companies," Journal of Productivity Analysis, Springer, vol. 8(3), pages 281-292, August.
    2. Jagtiani, Julapa & Khanthavit, Anya, 1996. "Scale and scope economies at large banks: Including off-balance sheet products and regulatory effects (1984-1991)," Journal of Banking & Finance, Elsevier, vol. 20(7), pages 1271-1287, August.
    3. Stensland, Jeffrey & Pederson, Glenn D., 1995. "Performance Of Minnesota Banks: An Analysis Of Strategic Management Choices," Staff Papers 14203, University of Minnesota, Department of Applied Economics.
    4. Mahajan, Arvind & Rangan, Nanda & Zardkoohi, Asghar, 1996. "Cost structures in multinational and domestic banking," Journal of Banking & Finance, Elsevier, vol. 20(2), pages 283-306, March.
    5. Daniel Gropper & Steven Caudill & T. Beard, 1999. "Estimating Multiproduct Cost Functions Over Time Using a Mixture of Normals," Journal of Productivity Analysis, Springer, vol. 11(3), pages 201-218, June.
    6. Neuberger, Doris, 1997. "Structure, Conduct and Performance in Banking Markets," Thuenen-Series of Applied Economic Theory 12, University of Rostock, Institute of Economics.
    7. Musleh-Ud Din & Ejaz Ghani & Sarfraz K. Qureshi, 1996. "Scale and Scope Economies in Banking: A Case Study of the Agricultural Development Bank of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 35(3), pages 203-213.
    8. Ors, Evren, 2004. "Postmortem on the Federal Reserve's Functional Cost Analysis Program: how useful was the FCA?," Review of Financial Economics, Elsevier, vol. 13(1-2), pages 121-148.

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