Scale Effects on Efficiency and Profitability in the Swiss Banking Sector

46 Pages Posted: 1 Sep 2021

See all articles by Marc Blatter

Marc Blatter

Swiss National Bank

Andreas Fuster

École Polytechnique Fédérale de Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Date Written: August 23, 2021

Abstract

This paper analyzes efficiency and profitability in the Swiss banking sector over the period 1997- 2019. We find strong evidence for scale economies: for most banks in the sample, efficiency and profitability increase with bank size. Using an instrumental variables strategy for a subset of geographically restrained banks, we find that the effect of size on efficiency and profitability is likely causal. Scale economies have been more pronounced since 2010 than in the years prior to the global financial crisis. There is little evidence for scale economies for the largest (systemically important) banks; their relatively lower efficiency and lower profitability appear driven by certain aspects of their business model. Our results further indicate that good capitalization and high efficiency and profitability are compatible.

Keywords: Bank efficiency, profitability, economies of scale, financial regulation

JEL Classification: G21, G28

Suggested Citation

Blatter, Marc and Fuster, Andreas, Scale Effects on Efficiency and Profitability in the Swiss Banking Sector (August 23, 2021). Swiss Finance Institute Research Paper No. 21-61, Available at SSRN: https://ssrn.com/abstract=3914154 or http://dx.doi.org/10.2139/ssrn.3914154

Marc Blatter

Swiss National Bank ( email )

Research
Fraumuensterstr. 8
Zuerich, 8022
Switzerland

Andreas Fuster (Contact Author)

École Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Chamberonne
Bâtiment Extranef
CH-1015 Lausanne
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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