Efficiency and Productivity Growth

Preface xiii
 
Contributors xvii
 
1 Bank efficiency in Latin America 1
Philip Molyneux and Jonathan Williams
 
1.1 Introduction 1
 
1.2 Privatization and foreign banks in Latin America 2
 
1.3 Methodology 4
 
1.4 Model specification and data 7
 
1.5 Estimated parameters and cost efficiency 10
 
1.6 Conclusion 15
 
References 15
 
2 A primer on market discipline and governance of financial institutions for those in a state of shocked disbelief 19
Joseph P. Hughes and Loretta J. Mester
 
2.1 Introduction 20
 
2.2 Assessing the performance of financial institutions 21
 
2.3 Market discipline, public regulation, and the federal safety net 24
 
2.4 Sources of market discipline 27
 
2.4.1 Ownership structure 27
 
2.4.2 Capital markets 37
 
2.4.3 Product markets 37
 
2.4.4 Labor markets 39
 
2.4.5 Boards of directors 40
 
2.4.6 Compensation 41
 
2.5 Conclusions 42
 
Appendix 2.A: Measuring performance based on the highest potential market value of assets 43
 
References 44
 
3 Modeling economies of scale in banking: Simple versus complex models 49
Robert DeYoung
 
3.1 Introduction 49
 
3.2 The increasing size of banks 50
 
3.3 What has allowed banks to grow larger? 53
 
3.3.1 New banking technologies 53
 
3.4 Why do banks choose to be large? 54
 
3.4.1 Objectives of bank management 55
 
3.4.2 Government subsidies 56
 
3.4.3 Scale economies 56
 
3.5 Econometric modeling of bank scale economies 57
 

3.5.1 Findings from 50 years of studies 58
 
3.6 Weaknesses in econometric modeling of bank scale economies 60
 
3.6.1 Few and far between 61
 
3.6.2 Strategic groups 62
 
3.6.3 External costs 68
 
3.7 Other evidence on bank scale economies 68
 
3.7.1 Survivor analysis 68
 
3.7.2 The market