AN EMPIRICAL ANALYSIS OF COST EFFICIENCIES IN THE REGIONAL BANKING INDUSTRY IN THE UNITED STATES

D. K. Malhotra
Justin Opella
Raymond Poteau
Philadelphia University
This study analyzes the cost efficiencies of 34 regional U.S. banks over the period of
ten years (2004–2013). The authors of this study use translog cost function to evaluate
economies of scale in the banking sector. Translog cost function is estimated for total cost,
non-interest expenses, interest expenses, and employee cost. The authors also estimate cost
efficiencies with respect to output and output is defined in three different ways–total assets,
total deposits, and total loans of regional banks. Estimates of cost elasticity show that regional
American banks in the United States (U.S.) banks are reaping economies of scale with respect
to total assets, total deposits, and total loans, because with every dollar increase in assets or
deposits or loans, cost is rising less than proportionately.