The cost-output relationship of banks revisited

This paper offers a different method for the analysis of economies to scale in banks. It concentrates on the characteristics of the cost surface rather than on those of the cost function. This facilitates a direct test for the existence of interproduct complementarity in banks. The paper suggests that the interest charges should be examined as part of the banks' operating costs. This study offers two main empirical results regarding a more efficient growth pattern and organizational structure of banks. First, it shows that a proportionate increase in bank outputs does not reduce the average costs of production, and secondly, it reveals that the production process of banks involves interproduct complementarity.