Are European banks too big? Evidence on economies of scale

Beccalli, Elena; Anolli, Mario; Borello, Giuliana

doi:10.1016/j.jbankfin.2015.04.014

Cited by 92 publications

(69 citation statements)

References 49 publications

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“…Even among banks in the fourth quartile (the largest 25% of banks by assets), we reject CRS in favor of IRS for a substantial number of banks, and in favor of DRS for very few banks. Our results are thus similar to other recent studies finding that even many large banks operate under increasing RTS (e.g., Becalli, Anolli, & Borello, ; Hughes & Mester, ; Kovner et al, ; Wheelock & Wilson, ).…”

Section: Resultssupporting

confidence: 92%

“…These studies suggest that technological advances may have also generated IRS for banks. Indeed, using a variety of methodologies and datasets, several recent studies find more evidence of substantial economies of scale in banking, with some finding that even very large banks operate under IRS (e.g., Hughes & Mester, ; Kovner, Vickrey, & Zhou ; and Wheelock & Wilson, , for US banks; and Becalli, Anolli, & Borello, , for European banks). However, other studies are less conclusive (e.g., Feng & Zhang, ; Restrepo‐Tobón & Kumbhakar, ) and questions remain.…”

Section: Introductionmentioning

confidence: 99%

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The evolution of scale economies in US banking

Wheelock

Wilson

2017

J of Applied Econometrics

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Continued consolidation of the US banking industry and a general increase in the size of banks have prompted some policymakers to consider policies that discourage banks from getting larger, including explicit caps on bank size. However, limits on the size of banks could entail economic costs if they prevent banks from achieving economies of scale. This paper presents new estimates of returns to scale for US banks based on nonparametric, local-linear estimation of bank cost, revenue, and profit functions. We report estimates for both 2006 and 2015 to compare returns to scale some 7 years after the financial crisis and 5 years after enactment of the Dodd-Frank Act with returns to scale before the crisis. We find that a high percentage of banks faced increasing returns to scale in cost in both years, including most of the 10 largest bank holding companies. Also, while returns to scale in revenue and profit vary more across banks, we find evidence that the largest four banks operate under increasing returns to scale.

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Section: Resultssupporting

confidence: 92%

Section: Introductionmentioning

confidence: 99%

The evolution of scale economies in US banking

Wheelock

Wilson

2017

J of Applied Econometrics

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“…The economic scale in the group of small and medium banks have not been achieved. This finding contrasts with the conclusion of Berger and Hannan (1998), however it is much like the latest findings in US and European banks (Kovner, Vickrey andZhou, 2014 andBeccali, Anolli, andBorello, 2015).…”

Section: Resultscontrasting

confidence: 89%

“…Big bank can achieve economies of scale and has a natural competitive cost compared to its competitors (Hughes and Mester (2013) and Kovner, Vickrey and Zhou (2014)). Beccalli, Anolli, and Borello (2015) show that big banks in European countries operates as a big financial conglomerate with broad financial services and far more efficient than their smaller competitors. Feng and Serlitis (2010) found same result in USA banks.…”

Section: Introductionmentioning

confidence: 99%

Bank Scale of Economies, Banking Industry Concentration, and Competition Level: The Indonesian Case

Wibowo

2016

jbm

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Abstrak Efisiensi sektor perbankan sebuah negara sangat dipengaruhi regulasi otoritas perbankan di negara tersebut berkaitan AbstractBanking sector efficiency in a country is directly influenced by regulations that set up by the banking authorities in that country, especially what kind of banking industry structure that regulator intend by those regulation. Indonesian Banking Architecture which encourage mergers and acquisitions of smaller banks, has a clear target that Indonesian banking industry should have a leaner industry structure with fewer number of banks but with relatively large assets, higher industry concentration higher and more tighter competition. This policy is driven by the regulator's belief that Indonesian banks has not achieved its economies of scales and competition is relatively low so that the Indonesian banking operating costs are among the highest among Asian countries. The opposite actually happened in the USA where the regulator is precisely to prevent mergers between major banks due to economies of scale bank in the United States has been exceeded. The reserach results showed the group of large banks in Indonesia is more efficient than medium and small banks and the efficiency is more due to economies of scale than caused by the concentration of the industry and the level of competition between banks.

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“…These studies suggest that technological advances may have also generated IRS for banks. Indeed, using a variety of methodologies and datasets, several recent studies find more evidence of substantial economies of scale in banking, with some finding that even very large banks operate under IRS (e.g., Wheelock and Wilson, 2012;Hughes and Mester, 2013;andKovner et al, 2014 for U.S. banks, andBecalli et al, 2015 for European banks). However, other studies are less conclusive (e.g., Feng and Zhang, 2014;Restrepo-Tobón and Kumbhakar, 2015) and questions remain.…”

Section: Introductionmentioning

confidence: 99%

The Evolution of Scale Economies in U.S. Banking

Wheelock

Wilson

2015

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Continued consolidation of the U.S. banking industry and a general increase in the size of banks has prompted some policymakers to consider policies that discourage banks from getting larger, including explicit caps on bank size. However, limits on the size of banks could entail economic costs if they prevent banks from achieving economies of scale. This paper presents new estimates of returns to scale for U.S. banks based on nonparametric, local-linear estimation of bank cost, revenue and profit functions. We report estimates for both 2006 and 2015 to compare returns to scale some seven years after the financial crisis and five years after enactment of the Dodd-Frank Act with returns to scale before the crisis. We find that a high percentage of banks faced increasing returns to scale in cost in both years, including most of the 10 largest bank holding companies. And, while returns to scale in revenue and profit vary more across banks, we find evidence that the largest four banks operate under increasing returns to scale.

show abstract

Are European banks too big? Evidence on economies of scale

Cited by 92 publications

References 49 publications

The evolution of scale economies in US banking

The evolution of scale economies in US banking

Bank Scale of Economies, Banking Industry Concentration, and Competition Level: The Indonesian Case

The Evolution of Scale Economies in U.S. Banking

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