Our research as well as that by other authors has found scale economies at all sizes of banks and the largest scale economies at the largest banks – that is, larger banks are able to provide products at lower average cost than smaller banks. While the earlier literature found that scale...

By eliminating the influence of statistical noise, stochastic frontier techniques permit the estimation of the best-practice value of a firmś investment opportunities and the magnitude of a firmś systematic failure to achieve its best-practice market value - a gauge of the magnitude of agency...

This paper explores how to incorporate banks' capital structure and risk-taking into models of production. In doing so, the paper bridges the gulf between (1) the banking literature that studies moral hazard effects of bank regulation without considering the underlying microeconomics of...

We argue for a shift in the focus of modeling production from the traditional assumptions of profit maximization and cost minimization to a more general assumption of managerial utility maximization that can incorporate risk incentives into the analysis of production and recover value-maximizing...

The second Basel Capital Accord points to market discipline as a tool to reinforce capital standards and supervision in promoting bank safety and soundness. The Bank for International Settlements contends that market discipline imposes strong incentives on banks to operate in a safe and...

Earlier studies found little evidence of scale economies at large banks; later studies using data from the 1990s uncovered such evidence, providing a rationale for very large banks seen worldwide. Using more recent data, we estimate scale economies using two production models. The standard...

This paper explores how to incorporate banks' capital structure and risk-taking into models of production. In doing so, the paper bridges the gulf between (1) the banking literature that studies moral hazard effects of bank regulation without considering the underlying microeconomics of...

We argue for a shift in the focus of modeling production from the traditional assumptions of profit maximization and cost minimization to a more general assumption of managerial utility maximization that can incorporate risk incentives into the analysis of production and recover value-maximizing...

Our research as well as that by other authors has found scale economies at all sizes of banks and the largest scale economies at the largest banks - that is, larger banks are able to provide products at lower average cost than smaller banks. While the earlier literature found that scale...