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Bankers and bank investors: Reconsidering the economies of scale in banking

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  • Anderson, Ronald
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Abstract

We study economies of scale in banking by viewing banks as combinations of financial and human capital that create rents which accrue to investors and bankers. Applying this approach to annual data of US bank holding companies since 1990, we find much stronger evidence of economies of scale in returns to bankers as compared to returns to investors. The scale economies appear to be particularly strong in the top size decile of banks measured by total assets. We find that rents accruing to bankers are particularly strong in banks with a relatively large share of non-interest income and that for the largest banks a reduction of net interest margin is associated with an increase in bankers' rents. We find incorporating observable proxies for funding efficiency and presence in wholesale banking activities greatly reduces the pure size effect.

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  • Anderson, Ronald & ,, 2012. "Bankers and bank investors: Reconsidering the economies of scale in banking," CEPR Discussion Papers 9146, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9146
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    Cited by:

    1. Robert McKeown, 2017. "Where Are The Economies Of Scale In Canadian Banking?," Working Paper 1380, Economics Department, Queen's University.
    2. Shekhar Aiyar & Charles W. Calomiris & Tomasz Wieladek, 2015. "How to Strengthen the Regulation of Bank Capital: Theory, Evidence, and A Proposal," Journal of Applied Corporate Finance, Morgan Stanley, vol. 27(1), pages 27-36, March.
    3. Robert McKeown, 2017. "Costs, Size And Returns To Scale Among Canadian And U.s. Commercial Banks," Working Paper 1382, Economics Department, Queen's University.
    4. Randall Kroszner, 2016. "A Review of Bank Funding Cost Differentials," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(2), pages 151-174, June.
    5. Robert McKeown, 2017. "An Overview Of The Canadian Banking System: 1996 To 2015," Working Paper 1379, Economics Department, Queen's University.

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    More about this item

    Keywords

    Agency; Banking; Compensation policy; Scale economies;
    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

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