COST STRUCTURES IN MULTINATIONAL AND DOMESTIC BANKING

Prior research on international banking has proposed many reasons for the multinationalization of U.S. banks but provided little empirical s upport for its propositions. Using a pooled-time series data set from 1987 to 1990, this study analyzes the ray and expansion path scale eco nomies and expansion path subadditivity of U.S. based multinational ba nks (MNBs), both at the firm and the plant levels. It also measures an d analyzes inefficiencies for these banks. Inefficiencies are measured relative to a 'thick frontier' cost function. A similar analysis is c onducted for domestic banks (DBs) for comparison purposes. No support is found for the prior belief that similar cost structures exist for M NBs and DBs. In general, we find that MNBs are able to fully exploit e conomies of scale, and face lesser diseconomies from joint production and lower inefficiencies than DBs.