Role of off-balance sheet operations on bank scale economies: Evidence from China's banking sector |
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| Affiliation: | 1. School of Economics and Finance, Xi''an Jiaotong University, PR China;2. Xi''an Branch, The People''s Bank of China, PR China;1. VU University Amsterdam and Tinbergen Institute, De Boelelaan 1105, Amsterdam 1081 HV, The Netherlands;2. Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, MA 02210, United States;3. De Nederlandsche Bank, Westeinde 1, Amsterdam 1017 ZN, The Netherlands;1. Division of International Trade, Incheon National University, Incheon, Republic of Korea;2. College of Economics, Sungkyunkwan University (SKKU), Seoul, Republic of Korea |
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| Abstract: | This paper investigates product-specific scale economies of banks with respect to off-balance sheet operations. The cost benefits from the non-separability of outputs available to banks that imply the role of OBS activities on bank scale economies are also examined. We further test whether the role of OBS operations on bank scale economies changes across heterogeneous banks. Results suggest that banks can realize more scale economies by increasing OBS operations and that scale economies can be reaped particularly for non-state-owned banks. Therefore, diversification and deregulation should be included in the policy agenda for the subsequent marketization reform of China's banking sector. |
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