Financial Deregulation and Economies of Scale and Scope: Evidence from the Major Australian Banks

In this study a parametric approach employing a flexible translog functional model is used to estimate economies of scale and scope in the four major Australian banks (ANZ, NAB, CBA and WESTPAC). Two hypotheses are tested to determine whether bank economies of scale have changed and also whether eco...

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Bibliographic Details
Published in:Asia-Pacific financial markets 2001-09, Vol.8 (3), p.197
Main Authors: Edirisuriya, Piyadasa, O'Brien, G C
Format: Article
Language:English
Subjects:
Banking industry
Banks
Cash management
Competition
Cost control
Deregulation
Econometrics
Economies of scale
Efficiency
Hypotheses
Interest rates
Mathematical models
Studies
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Summary:In this study a parametric approach employing a flexible translog functional model is used to estimate economies of scale and scope in the four major Australian banks (ANZ, NAB, CBA and WESTPAC). Two hypotheses are tested to determine whether bank economies of scale have changed and also whether economies of scope were exhausted following financial deregulation. The analysis reveals that there is evidence for a continuing difference in banks' economies of scale as a result of deregulation. The empirical evidence also suggests that economies of scope were not exhausted by financial deregulation. In addition, there is continuing evidence of considerable economies of scope in the four major banks. In other words, Australian banks have not fully embraced deregulation and adjusted their joint production in a cost efficient manner. Findings in this study indicate that further deregulation would create a more competitive and efficient banking environment in Australia. [PUBLICATION ABSTRACT]
ISSN:1387-2834
1573-6946
DOI:10.1023/A:1016260215809