REGIONAL VARIATIONS IN TECHNOLOGICAL-CHANGE AND IN POTENTIAL GAINS FROM CONSOLIDATION AMONG UNITED-STATES COMMERCIAL-BANKS

This paper investigates the regional variations in the impact of techn ological change and in gains from consolidation among U.S. commercial banks. We estimate a multiproduct translog cost function with the appr opriate regional dummy variables. Technological change, ray scale econ omies and scale biases in technological change are estimated for each region. Furthermore, pairwise expansion path economies between all the regions are calculated to evaluate the potential gains from interregi onal consolidation. In general Southwest banks had the worst and South east the best technological change. There is substantial disparity acr oss regions. It also appears that technological change increased the e fficient size in the Midwest and Southwest regions and reduced it in t he West, Northeast and Southeast. Banks in all regions show ray econom ies of scale, affirming the need for larger banks if output mix remain s constant. Finally, the results support takeover of regional banks by the Money Center banks but not vice-versa, and favor consolidation am ong regional banks. The biggest potential gains accrue from mergers of Southeast banks with either Midwest or Southwest banks and the least gains are derived from mergers between Midwest and Southwest banks.