Cost Structures in Multinational and Domestic Banking

Abstract

Prior research on international banking has proposed many reasons for the multinationalization of U.S. banks butprovided little empirical support for its propositions. Using a pooled -time series data set from 1987 to 1990, this study analyzes the ray and expansion path scale economies and expansion path subadditivity of U.S. based multinational banks (MNBs), both at the firm and the plant levels. It also measures and analyzes inefficiencies for these banks. Inefficiencies are measured relative to a "thick frontier" cost function. A similar analysis is conducted for domestic banks (DBs) for comparison purposes. No support is found for the prior belief that similar cost structures exist for MNBs and DBs. In general, we find that MNBs are able to fully exploit economies of scale, and face lesser diseconomies from joint production and lower inefficiencies than DBs.

Note: This is a description of the paper and is not the actual abstract.

JEL Classification: G21, G28, F23