Optimal Industrial Structure in Banking

This paper discusses the research agenda on optimal bank productive efficiency and industrial structure. One goal of this agenda is to answer some fundamental questions in financial industry restructuring, such as what motivates bank managers to engage in mergers and acquisitions, and to evaluate the costs and benefits of consolidation, which is essentially an empirical question. The paper reviews the recent literature, including techniques for modeling bank production and the empirical results on scale economies, scope economies, and efficiency in banking.