Premium
Do Large Banks Have Lower Costs? New Estimates of Returns to Scale for U.S. Banks
Author(s) -
WHEELOCK DAVID C.,
WILSON PAUL W.
Publication year - 2012
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2011.00472.x
Subject(s) - scale (ratio) , estimator , returns to scale , econometrics , economies of scale , economics , nonparametric statistics , parametric statistics , macroeconomics , statistics , mathematics , microeconomics , geography , cartography , production (economics)
This paper presents new, fully nonparametric estimates of ray‐scale and expansion‐path scale economies for U.S. banks based on a model of bank costs. Unlike prior studies that use models with restrictive parametric assumptions or limited samples, our methodology uses local polynomial estimators and data on all U.S. banks over the period 1984–2006. Our estimates indicate that as recently as 2006, most U.S. banks faced increasing returns to scale, suggesting that scale economies are a plausible (but not necessarily only) reason for the growth in average bank size and that the tendency toward increasing scale is likely to continue unless checked by government intervention.