• Cost Structures in American Commercial Banks Under $10 Billion: Trend Analysis with Policy Considerations

      Stucker, Thomas (2021-12)
      Cost structures in the banking have historically been a point of study for economists, but many existing economies of scale studies use highly restricted samples. I compiled quarterly data from 2002-2020 from the Federal Financial Institutions Examination Council’s Uniform Bank Performance Report to estimate the relationship between bank size (measured by total assets) and bank overhead (noninterest) expense for US banks under $10 billion in total assets. I included a continuous time trend as well as binary time variables for the 2008 recession period and the post-Dodd-Frank era in a multiple linear regression model. My estimation found statistically significant evidence for economies of scale in banking under asset levels of $1.45 billion, and that overhead costs trended downwards over time with exceptions during the recession and the Dodd-Frank era. Synthesizing these results with contemporary literature reveals how an understanding of bank cost structures can aid regulators in assessing the potential costs and benefits of new banking regulations.