Bank Scale Economies, Mergers, Concentration, and Efficiency: The U.S. Experience

Posted: 10 Aug 1999

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

David B. Humphrey

Florida State University - Department of Finance

Abstract

This paper summarizes research on U.S. bank cost and profit functions, and their policy implications. The purpose is to provide a backdrop for the likely implications of European financial integration. Scale and scope economies in banking are not found to be important, except for the smallest banks. X-efficiency, or managerial ability to control costs, is of much greater magnitude -- at least 20% of banking costs. Mergers have no significant predictable effect on efficiency -- some mergers raise efficiency but others lower it. Market concentration results in slightly less favorable prices for customers, but has little effect on profitability.

JEL Classification: G21, G28, L40, L89, C33

Suggested Citation

Berger, Allen N. and Humphrey, David B., Bank Scale Economies, Mergers, Concentration, and Efficiency: The U.S. Experience. Available at SSRN: https://ssrn.com/abstract=6028

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

David B. Humphrey

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States
850-644-7899 (Phone)
850-668-6696 (Fax)

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