Large Bank Efficiency in Europe and the United States: Are There Economic Motivations for Geographic Expansion in Financial Services?
This paper employs stochastic frontier cost and profit models to estimate the efficiency of multibillion dollar European and U.S. banks. Empirical results suggest that both large European and U.S. banks have decreasing (increasing) cost (profit) returns to scale. Also, large banks in Europe and the United States similarly exhibit increasing returns to scale and decreasing (increasing) scope economies for the cost (profit) model. However, large U.S. banks have higher average profit efficiency than European banks on average. We conclude potential efficiency gains are possible via geographic expansion of large European and U.S. banks.
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