Are European banks too big? Evidence on economies of scale |
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| Institution: | 1. Department of Accounting, London School of Economics and Political Science, Houghton St, WC2A 2AE London, UK;2. School of Banking and Finance, Università Cattolica del Sacro Cuore, Largo Gemelli 1, 20123 Milan, Italy;3. Università Cattolica del Sacro Cuore, Largo Gemelli 1, 20123 Milan, Italy;1. Dipartimento SEGESTA, Università Cattolica del Sacro Cuore, Via Necchi 5, 20123 Milano, Italy;2. Dipartimento Economia e finanza, Università Cattolica del Sacro Cuore, Via Necchi 5, 20123 Milano, Italy;3. Area Crediti, BCC Sesto San Giovanni, Viale Gramsci 202, Sesto San Giovanni, Italy;1. University of Groningen, Faculty of Economics and Business, Department of Economics, Econometrics and Finance, P.O. Box 800, 9700 AV Groningen, The Netherlands;2. University of Wyoming, Department of Economics and Finance, 1000 East University Ave., Laramie, WY 82071, USA;3. Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Australia;1. Bournemouth University, 4th floor, Executive Business Centre, 89 Holdenhurst Road, Bournemouth, BH8 8EB, UK;2. Bournemouth University, 5th floor, Executive Business Centre, 89 Holdenhurst Road, Bournemouth, BH8 8EB, UK;3. University of Stellenbosch, South Africa |
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| Abstract: | In light of the policy debate on too-big-to-fail we investigate evidence of economies of scale for 103 European listed banks over 2000–2011. Using the Stochastic Frontier Approach, the results show that economies of scale are widespread across different size classes of banks and are especially large for the biggest banks. At the country level, banks operating in the smallest financial systems and the countries most affected by the financial crises realize the lowest scale economies (including diseconomies) due to the reduction in production capacity. As for the determinants of scale economies, these mainly emanate from banks oriented toward investment banking, with higher liquidity, lower Tier 1 capital, those that contributed less to systemic risk during the crises, and those with too-big-to-fail status. |
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| Keywords: | Bank Economies of scale Regulation Too-big-to-fail EU |
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