511 - Bank mergers, banking efficiency, and economies of scale and scope: a review of empirical literature

Wetenschappelijke publicatie
Date 6 August 1997

Against the background of past bank merger activities the present overview discusses the recent empirical literature on bank mergers, banking efficiency and the existence of scale and product mix economies for banks. Previous mainly US-based bank cost studies generally reveal that only minor cost reductions can be achieved by aiming at a scale efficient level. Considerably more promising are potential cost savings related to the existence of operational inefficiencies as a result of an inefficient use of resources (X-inefficiencies). Empirical studies on cost effects of bank mergers show that on average merged banks do not improve their cost efficiency relative to nonmerged banks. Individual bank mergers though may be successful. Moreover, some recent studies suggest that the benefits of mergers must not be searched for at the cost side only, which has been the methodology of research employed by the majority of bank merger studies, but also on the revenue side.