A revenue-restricted cost study of 100 large banks

Abstract

A revenue-restricted cost function, derived from duality theory assuming that firms optimize outputs as well as inputs, is estimated for a sample of large commercial banks. This form has the advantages of sidestepping the controversy over the role of deposits in the bank production function, measuring banks' output as a flow rather than a stock, and allowing flexible treatment of the expansion path of a multiproduct bank. The results indicate statistically significant and economically meaningful economies of scale out to large size ranges.

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