No. 568 - Economies of scales revisited: evidence from Italian banks

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by Emilia Bonaccorsi di Patti and Federica CiocchettaJune 2020

The paper presents an analysis of scale economies for the Italian banking industry, using data for 2006-2017, with the aim of assessing potential benefits from an increase in the size of banks. Scale economies are measured by the elasticity of operating costs to a proportional increase in bank outputs. The indicator is obtained through the estimation of a multiproduct cost function according to which banks produce various types of loan, payment and asset management services.

The results of the analysis show that an increase in the size, through consolidation, could yield significant benefits in terms of cost efficiency for small and medium-sized banks, especially if accompanied by a more extensive adoption of new technologies in the provision of services and a reorganization of the branch network. An important caveat to this conclusion is that we focus solely on operating costs.

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