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http://hdl.handle.net/10419/59493
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| Title: | | Who said large banks don't experience scale economies? Evidence from a risk-return-driven cost function  |
| Authors: | | Hughes, Joseph J. Mester, Loretta |
| Issue Date: | | 2011 |
| Series/Report no.: | | Working Papers, Department of Economics, Rutgers, the State University of New Jersey 2011,27 |
| Abstract: | | Earlier studies found little evidence of scale economies at large banks; later studies using data from the 1990s uncovered such evidence, providing a rationale for very large banks seen worldwide. Using more recent data, we estimate scale economies using two production models. The standard risk-neutral model finds little evidence of scale economies. The model using more general risk preferences and endogenous risk-taking finds large scale economies. We show that these economies are not driven by too-big-to-fail considerations. We evaluate the cost implications of breaking up the largest banks into banks of smaller size. |
| JEL: | | D21 D20 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Working Papers, Department of Economics, Rutgers University
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