Economics, Econometrics and Finance
4 years ago

Bank size impacts performance: larger banks hide scale economies through risk-taking.

Working paper
Measuring the Performance of Banks: Theory, Practice, Evidence, and Some Policy Implications
Joseph P. Hughes, Loretta J. Mester

Paper Summary

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Banks' unique way of funding affects their ability to provide services, manage risks, and make profits. The size of a bank influences its risk-taking behavior, impacting its performance. Larger banks can benefit from economies of scale, but only if they manage risks effectively. Studies show that larger banks can have significant cost advantages if they control for risk-taking behavior, which has important implications for banking regulations.