Scale and scope economies at large banks: including off-balance sheet products and regulatory effects (1984-1991)

Article Abstract:

The imposition of risk-based capital requirement (RBC) on the banking industry has resulted in several inefficiencies, especially in the case of big banks. This finding is based on data covering the 1984-1991 period. The implementation of the RBC has changed the optimal bank size in terms of scope and scale economies and optimal product mixes. Many big banks, which were already operating efficiently, became inefficient as they became even larger.

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FDICIA and bank capital

Article Abstract:

The Federal Deposit Insurance Corp. Improvement Act of 1991 has proven to be a significant legislation on banking that reasonably achieved its aims. Its deposit reform provisions have been successful in solving moral hazard and agency problems. The first problem arises when banks fall into the situation of insufficient capital while the other problem deals with forebearance involving sanctions, penalties and eventual closure.

Panel Discussion

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Do the M&M propositions apply to banks?

Article Abstract:

The issue on the applicability of M&M propositions to banking institutions is discussed through the comparison of deposits with securities, the real cost of bank equity and the the amount of bank capital needs. Mainstream opinion seems to disfavor the link but there exists some valid reasons for using the M&M propositions in solving the complex issue of bank capital requirements.

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