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Scale Effects on Efficiency and Profitability in the Swiss Banking Sector

Author

Listed:
  • Marc Blatter

    (Swiss National Bank)

  • Andreas Fuster

    (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR))

Abstract

This paper analyzes efficiency and profitability in the Swiss banking sector over the period 1997- 2019. We find strong evidence for scale economies: for most banks in the sample, efficiency and profitability increase with bank size. Using an instrumental variables strategy for a subset of geographically restrained banks, we find that the effect of size on efficiency and profitability is likely causal. Scale economies have been more pronounced since 2010 than in the years prior to the global financial crisis. There is little evidence for scale economies for the largest (systemically important) banks; their relatively lower efficiency and lower profitability appear driven by certain aspects of their business model. Our results further indicate that good capitalization and high efficiency and profitability are compatible.

Suggested Citation

  • Marc Blatter & Andreas Fuster, 2021. "Scale Effects on Efficiency and Profitability in the Swiss Banking Sector," Swiss Finance Institute Research Paper Series 21-61, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2161
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    Cited by:

    1. Robert Gharios & Bashar Abu Khalaf, 2024. "Digital Marketing’s Effect on Middle East and North Africa (MENA) Banks’ Success: Unleashing the Economic Potential of the Internet," Sustainability, MDPI, vol. 16(18), pages 1-20, September.
    2. Belay Mengstie & Tafa Mosisa & Toleshi Mosisa, 2024. "Impact of working capital management on profitability of private commercial banks in Ethiopia," Journal of Innovation and Entrepreneurship, Springer, vol. 13(1), pages 1-18, December.
    3. Evgeny V. Balatsky, Natalia A. Ekimova, 2024. "Identification of Economies of Scale in Regional-Industrial Production Complexes of Russia: Theoretical Foundations and Econometric Estimates," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 23(2), pages 394-421.
    4. Suzan Dsouza & Mustafa Raza Rabbani & Iqbal Thonse Hawaldar & Ajay Kumar Jain, 2022. "Impact of Bank Efficiency on the Profitability of the Banks in India: An Empirical Analysis Using Panel Data Approach," IJFS, MDPI, vol. 10(4), pages 1-18, October.
    5. Stefanie Behncke, 2023. "Effects of Macroprudential Policies on Bank Lending and Credit Risks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 63(2), pages 175-199, April.

    More about this item

    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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