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The Evolution of Scale Economies in U.S. Banking

Prof. Paul W. Wilson (Clemson University, USA)
Speaker (visiting professor): 
Data dell'evento: 
Mercoledì, 13 April, 2016 - 11:00
Aula B203 - DIAG
Cinzia Daraio (daraio@dis.uniroma1.it)
Continued consolidation of the U.S. banking industry and general increase in the
size of banks has prompted some policymakers to consider policies to 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. The extent of scale economies in banking remains unclear. This paper presents
new estimates of returns to scale for U.S. commercial banks based on nonparametric
estimation of bank cost, revenue and profit functions. We present estimates
for both 2006 and 2012 to compare the extent of scale economies in banking some four
years after the financial crisis and two years after enactment of the Dodd-Frank Act
with scale economies prior to the crisis. We find that most banks faced increasing
returns to scale in cost in both years, though results for the very largest banks in 2012
are somewhat sensitive to specication. Further, most banks faced decreasing returns
in revenue in both years, though nearly all banks could still increase revenue and profit
by becoming larger.
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