Economies of Scale and Scope in Thrift Institutions: The Case of Finnish Cooperative and Savings Banks

Abstract

Accounting data on operating costs and outputs for cooperative and savings banks in 1983 and 1984 are used to provide empirical evidence on the cost structure of thrift institutions in Finland. A modified translog cost model is fitted to the data. Economies of scale and scope are estimated based on the coefficients of the cost model. Using advances and bills as outputs, the results indicate that cost curves for both cooperative banks and savings banks generally tend to be L-shaped at the plant level and U-shaped at the firm level. Scope diseconomies are found in the joint production of advances and bills. This evidenceindicates that natural monopoly conditions are not present in the Finnish thrift industry.