too big to be efficient the impact of implicit subsidies on estimates of scale economies for banks we examine whether too big to fail tbtf factors affect estimates of scale economies for large banks from a standard model of bank production that does not control for any tbtf factors we find evidence of scale economies for our sample of large banks we then control for tbtf factors by using a measure of the implicit subsidy that emerges from a reduction in tbtf banks funding costs due to investor expectations of government support we do this in two ways first we estimate scale economies from an augmented model of bank production that employs a proxy for the counterfactual price of debt that banks would face in the absence of any tbtf funding cost advantage second we estimate scale economies from a model of bank production that is estimated only for a sample of banks considered unlikely to be tbtf after controlling for tbtf factors using either method we no longer find evidence of scale economies for our sample of large banks these results suggest that estimated scale economies for large banks are affected by tbtf factors

real exchange rates under the recent float unequivocal evidence of mean reversion standard multivariate tests of long run ppp may reject nonstationarity when a single real exchange rate series is stationary we apply a test where the null hypothesis is violated only when all series are stationary and reject nonstationarity for real dollar rates

banking costs generalized functional forms and estimation of economies of scale and scope recently researchers have claimed that the primitive cobb douglas production technology captures banking cost functions adequately these findings rule out scope economies and u shaped cost curves the rejection of the generalized flexible form postulated by the above authors is a necessary but not a sufficient condition to justify a cobb douglas specification using restricted generalized functional forms the authors find that the composite output cobb douglas specification is an inadequate description of banking cost technology translog specifications with multiple products capture the data best suggesting the presence of both scope and scale economies copyright 1989 by ohio state university press

a welfare analysis of canadian chartered bank mergers an econometric model of canada s five largest banks is estimated using time series data from 1976 to 1996 the principal findings are that chartered bank technology is characterized by increasing returns to scale scale efficiency is sufficiently large to offset the consequences of reduced competition that might have arisen from a merger between bank of montreal and royal bank of canada canadian imperial bank of commerce and toronto dominion bank or both the estimated model predicts that all the mergers proposed in 1998 would have led to slightly lower prices and consequently to an increase in consumer welfare une analyse de bien etre des fusions des banques a charte canadiennes l auteur calibre un modele econometrique des cinq plus grandes banques a charte au canada a l aide de series chronologiques de 1976 a 1996 les principaux resultats montrent que la technologie des banques a charte a des rendements croissants a l echelle ces rendements a l echelle sont suffisamment importants pour compenser les effets de reduction de la concurrence qui auraient pu se produire en consequence de la fusion de la banque de montreal et la banque royale de la banque imperiale de commerce et de la banque toronto dominion ou des deux le modele suggere que toutes les fusions proposees en 1998 auraient entraine des prix legerement plus bas et en consequence un accroissement dans le niveau de bien etre des consommateurs

victory or repudiation predicting winners in civil wars using international financial markets we develop a method to estimate which side will win a civil war using data from international financial markets the key insight we deliver is that for typical sovereign debt contracts the probability of debt repayment will equal the probability of victory in a civil war we test our predictor for standard outcomes in civil wars including when the incumbent government loses the chinese nationalists when a new government is installed by a foreign power and decides to repudiate debt the restoration of ferdinand vii of spain and when there is a secession the u s confederacy for china markets were predicting a communist victory three years before it happened for the u s markets never gave the south much more than a 40 percent chance of maintaining the confederacy for spain markets considered the restoration of ferdinand vii as likely probabilities above 50 as soon as france declared its intention to send military forces to the area

nontraditional activities and the efficiency of us commercial banks abstract in recent years an increasing portion of bank income has been generated through nontraditional activities most studies of bank efficiency do not include any measure of nontraditional activities when measuring outputs in this paper cost revenue and profit efficiency are estimated by using models with and without nontraditional output the results suggest that the standard model which omits nontraditional output understates bank efficiency evidence also surfaces that based on efficiency the relative ranking of individual banks changes when nontraditional activities are included as a type of output

observing bailout expectations during a total eclipse of the sun abstract the literature has not reached a consensus yet regarding the existence of sovereign creditor moral hazard exploiting an exceptional historical example this paper proposes an original method to address this issue as the corona which is observable only during a total eclipse of the sun market specific prices of repudiated bonds are observable only when extreme conditions segment the markets such very rare events allow for isolating pure country specific bailout expectations the paper shows that bailouts do create creditor moral hazard based on an impulse response analysis the econometric results further emphasize the influence of bailout expectations in sovereign bonds valuation

x efficiency in banking looking beyond the balance sheet the distribution free and stochastic frontier estimation methods are used to derive bank specific measures of cost and profit xefficiency this is done to investigate the importance of including aggregate measures of off balance sheet obs activities the results indicate that economic cost and production cost x efficiency estimates increase with the inclusion of the obs measure profit xefficiency estimates are largely unaffected further the composition of bankso obs activities appears to help explain interbank differences in cost and profit x efficiency estimates whereas bank size and the mix between on and off balance sheet banking activities are largely uncorrelated with the x efficiency estimates

economies of scale and economies of scope in multiproduct financial institutions a study of british columbia credit unions this paper investigates the production technology facing computerized credit unions in canada a full system of translog cost equations is estimated in order to test for economies of scale economies of scope and other production characteristics in a multiproduct context the regression results indicate that most of the credit unions in our sample experience significant increasing returns to scale as they expand their level of output there is also evidence of cost complementarity or economies of scope in their mortgage and other lending activities as a result legislation which limits the ability of credit unions to grow and diversify will likely raise the operating costs of this important group of financial institutions additional structural tests of the most general translog specification suggest that none of the restrictive production conditions commonly imposed by other researchers using cobb douglas and ces specifications provide a valid representation of credit union technology the results of many earlier studies are therefore open to question this paper presents a number of structural tests of the production technology facing large computerized credit unions in canada a full system of translog cost equations is estimated using detailed cross sectional data on british columbia credit unions the parameter estimates obtained from our multiproduct specification allow us to test for economies of scale economies of scope and factor substitution unlike many earlier studies the present paper introduces the various outputs as separate variables instead of crudely proxying them with a single output measure such as total assets the total number of loans or the number of depositors by explicitly recognizing the multiproduct nature of the intermediation process we are able to address more interesting production questions and remove some of the bias caused by misspecification and measurement error in simpler approaches the flexible translog specification allows us to estimate the sensitivity of costs to proportionate increases in all outputs economies of scale as well as the cost savings firms realize by producing several outputs jointly rather than specializing in the production of one economies of scope the test results reported in the latter part of the paper suggest that increasing returns to scale exist in almost all of the credit unions in our sample though

deutsche mark dollar volatility intraday activity patterns macroeconomic announcements and longer run dependencies this paper provides a detailed characterization of the volatility in the deutsche mark dollar foreign exchange market using an annual sample of five minute returns the approach captures the intraday activity patterns the macroeconomic announcements and the volatility persistence arch known from daily returns the different features are separately quantified and shown to account for a substantial fraction of return variability both at the intraday and daily level the implications of the results for the interpretation of the fundamental driving forces behind the volatility process is also discussed the efficient market hypothesis contends that financial asset prices provide rational assessments of fundamental values and future payoffs by implication price changes should reflect the arrival and processing of all relevant new information however the proportion of return variability that can be ascribed to public news announcements is low for example cutler poterba and summers 1989 find that even the largest daily price changes in the stock market generally cannot be associated with any significant economic news 1 moreover proxies for the flow of public information e g the number of news items released by reuter s news service berry and hiowe 1994 or dow jones company mitchell and mulherin 1994 explain little of the overall variation thus if private information is ruled out proponents of rational price formation have to assert the existence of important news items

efficiency and economies of scale of large canadian banks the authors measure the economies of scale of canada s six largest banks and their costefficiency over time using a unique panel data set from 1983 to 2003 they estimate pooled translog cost functions and derive measures of relative efficiency and economies of scale

the performance of universal banks evidence from switzerland abstract this paper examines the performance of swiss banks from 1996 to 1999 using a broad definition of bank output we find evidence of large relative cost and profit inefficiencies in swiss banks a more narrow definition that focuses on only traditional activities leads to efficiency estimates that are even lower we also find evidence of economies of scale for small and mid size banks but little evidence that significant scale economies remain for the very largest banks finally evidence on scope economies is weak for the largest banks that are involved in a wide variety of financial activities taken together these results suggest few obvious benefits from the trend toward larger universal banks in switzerland

an examination of cost structure and production performance of commercial banks in singapore abstract this paper uses a parametric approach in the framework of a translog cost function and a non parametric approach in the framework of linear programming to examine production performance and cost structure of a sample of singaporean commercial banks the results of the parametric methodology suggest that the average cost curve of these banks is u shaped and there are economies of scale for small and medium size banks further analysis provides evidence of economies of scope for all banks regardless of their size the non parametric results indicate that the singaporean banks could have reduced cost by 43 had they all been overall efficient the sources of this cost inefficiency seem to be caused equally by allocative and technical inefficiencies

uninsured idiosyncratic production risk with borrowing constraints the author analyzes a general equilibrium model of a heterogeneous agents economy in which the agents are subject to borrowing constraints and uninsurable idiosyncratic production risk

economies of scale in banking indeterminacy and monetary policy this paper investigates economies of scale es in financial intermediation as a source of equilibrium indeterminacy consumption in the model can be purchased with currency and deposits and es in intermediation implies that deposit costs are decreasing in aggregate deposits the results suggest that indeterminacy does not depend on a large degree of es nor a large intermediation sector but on monetary policy and the determination of nominal interest rates monetary policies not targeting nominal rates allow for indeterminacy to arise for any degree of es while policies targeting nominal rates eliminates indeterminacy for all degrees of es

how did bank holding companies prosper in the 1990s abstract this paper examines the improved performance of us bank holding companies bhcs from 1991 to 1997 analysis of cost and profit functions using several alternative output specifications suggests that the gains were primarily due to productivity growth and changes in scale economies various econometric methodologies yield productivity growth of about 0 4 per year and the optimal size seems to have increased in the 1990s era of deregulation technological change and financial innovation estimates of both productivity growth and economies of scale are robust across traditional and non traditional output specifications despite the overall success however substantial cost and profit inefficiency existed for bhcs of all sizes in the 1990s these efficiency estimates are particularly sensitive to the output specification and failure to account for non traditional activities like off balance sheet obs items leads profit efficiency but not cost efficiency to be understated for the largest bhcs

bank failures and bank fundamentals a comparative analysis of latin america and east asia during the nineties using bank level data abstract this paper uses bank level data from recent banking crises in east asia and latin america to address the following two questions 1 to what extent did individual bank conditions explain the failures 2 in terms of their fundamentals was it mainly the weak banks ex ante that failed in the crisis countries the results show that for the two regions bank level fundamentals significantly affect the likelihood of collapse for these banks systemic shocks both macroeconomic and liquidity that triggered the crises mainly destabilized the weak banks ex ante particularly in east asia which raises questions about the role that regional differences play for the degree of banking sector resilience to systemic shocks in the financial and macroeconomic environment

simultaneous model of innovation secrecy and patent policy multiple innovators can and do come up with the same invention independently a famous case is the telephone two hours after alexander graham bell filed a patent application for it another application for the same invention arrived at the patent office many scholars such as ilkka rahnasto 2003 and hal r varian et al 2004 argue that since bell s time simultaneous innovation has become increasingly common we feel and our discussions with industry practitioners confirm that the simultaneous model of innovation characterizes especially network industries such as consumer electronics the internet software telecommunications and payment systems where standardization limits the possible paths for future technologies and so firms concentrate their r d activities on the same fields we suggest that simultaneous or independent invention has major implications for intellectual property ip policy in particular the possibility of simultaneous innovation changes the patenting decision firms tap patents for a defensive purpose since the choice is no longer between patenting or resorting to trade secrecy but between patenting or letting competitors patent by exploiting the vulnerability of innovative firms to rival innovation it is possible to design a welfareimproving patent system that induces innovators to patent rather than keep their innovations secret taking the simultaneous nature of innovation seriously also changes the way one should think about the relationship between ip and competition policies

historical presidential betting markets this paper analyzes the large and often well organized markets for betting on u s presidential elections that operated between 1868 and 1940 four main points are addressed first we show that the market did a remarkable job forecasting elections in an era before scientific polling second the market was fairly efficient despite the limited information of participants and active attempts to manipulate the odds third we argue political betting markets disappeared largely because of the rise of scientific polls and the increasing availability of other forms of gambling finally we discuss lessons this experience provides for the present

banks non traditional activities under regulatory changes impact on risk performance and capital adequacy using the big six canadian chartered banks quarterly financial statements and daily stock market data from 1982 to 2018 we examine the impact of non interest income on canadian banks risk perfor