A Comparative Multiproduct Cost Study of Foreign-Owned and Domestic-Owned US Banks

Posted: 18 Jun 2014

See all articles by Elyas Elyasiani

Elyas Elyasiani

Temple University - Department of Finance

Rasoul Rezvanian

Northeastern Illinois University

Date Written: 2002

Abstract

Significant presence of foreign-owned banks (FOBs) in the US banking markets has raised concerns about concentration of economic and financial power in foreign hands and increased risk exposure of the banking system. The proponents counter that international cost synergies, heightened competition, and improved bank performance resulting from the presence of FOBs justify foreign bank expansion. This paper contrasts the production technologies and the cost characteristics of the FOBs and the domestic-owned banks (DOBs) within a cost minimization context. The hypothesis of identical cost structures between the two groups is tested and rejected. Then, overall and product-specific scale and scope economy measures for the FOBs and the DOBs are derived for the 1992-1994 sample period, relative to the ownership-type-specific cost structures, and contrasted in order to shed light on the ownership-type effect on the cost structure of banks. Differences do manifest themselves between the two groups, but they are small in magnitude. No clear and strong patterns emerge between the ownership type and cost structure of the banks in the sample. These results are consistent with those of the relative efficiency of the FOBs and DOBs found in the literature.

Suggested Citation

Elyasiani, Elyas and Rezvanian, Rasoul, A Comparative Multiproduct Cost Study of Foreign-Owned and Domestic-Owned US Banks (2002). Applied Financial Economics, Vol. 12, 271-284, 2002; Fox School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2451280

Elyas Elyasiani (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

Rasoul Rezvanian

Northeastern Illinois University ( email )

5500 N. St. Louis Ave
Chicago, IL 60625
United States

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