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The article presents an exploration into the impact of technological change on transaction costs, currency demand, and inventory behaviors between banks and households in the United States. The adoption of several innovations are listed, including automated teller machines (ATMs), direct deposit services, and bank cash management systems. The changes wrought by such technological service shifts are analyzed through two samples of U.S. households, citing consistent measures with inventory management and demand for money theories. Concluding discussion on the implications of such delivery systems on transaction balances is also provided.

The article reports on determining demand for bank examiner power in the First National Bank Region of Great Britain. Bank examination involves a lot of labor for bank regulatory agencies so there is a lot of planning and budgeting involved. Examinations run through Great Britain's Office of the Regional Administrator. A model of study is developed based on the assumption that the manpower needed for a bank examination is relative to the size, structure, and financial condition of the bank being examined.

The article presents an examination into the consumer and market responses to the banking law reforms passed in 1975 in Maine pertaining to the opening of the restrictions on financial institutions. An overview of the state law is provided, highlighting allowances of branching, greater demand deposit powers, and more lending flexibility. Results of two consumer surveys are provided, highlighting predictable and stable moderate market penetration of thrift institutions. The implications of the reactions on considerations of similar reform on the national level are also discussed.

In several recent studies scale economies in the operations of commercial banking have been detected, assuming that expansion takes place with a fixed number of plants [1, 2, and 3]. The data for these studies were available for the periods 1959-1961 and 1963-1965 in one region of the United States. The purpose of this paper is to reestimate similar functions for an expanded sample covering virtually the entire United States for the year 1968. in this way, the results of earlier studies may be checked for generality, and the effect of time on the results may be investigated. In Section II, the model is described. The data and empirical results are presented in Section III. Section IV is a summary and conclusion. [ABSTRACT FROM AUTHOR]

In this paper, a risk-analysis simulation procedure was utilized to incorporate both a cash-flow liquidity concept and uncertainty in a liquidity-planning simulation model. The components of cash flow were specified. The model was implemented with the assistance of a large savings bank. The results indicate that a substantial dispersion in probable outcomes exists, from a $1 million outflow to $10 million inflow. The expected net flow, $5 million, greatly exceeds the point estimate derived by simply summing the individual point estimates. In fact, there is a 50 percent chance that the net flow will exceed the point estimate by more than $1.5 million. Such results from the liquidity planning model clearly give the banker a basis for determining the adequacy of his present liquidity position and therefore his cash management policy, as well as the optimum strategy in tens of various adjustment policies. Notwithstanding the benefits from implementation, the limitations noted previously should be repeated [1]. First, it is not dynamic in the sense of projecting through time. That is, the probability distribution is obtained for a flow that is to take place over a period of time. It is not possible to make any statement about cash needs for any particular day during that time. Second, the model does not seek an optimum solution. Third, the flows are considered independent and exogenous to the bank. Fourth, the underlying economic relationships are not derived rigorously. Hopefully, future refinements will deal with these and other problems. [ABSTRACT FROM AUTHOR]

The article presents a banking firm model which extends previous research on local bank market structure and impacts on its performance, incorporating market structure, competition, and bank demand deposit pricing policies. Questions are also raised regarding the significance of regulatory restrictions on the model. Empirical support is also provided, highlighting the problem of zero explicit yield restrictions on demand deposits.

The results of our tests indicate that branching does tend to reduce variability within a metropolitan area. Given the data with which we worked, no conclusive statement can be made concerning the relationship of geographical dispersion to diversification of deposits. In this paper we have measured the impact of branching on deposit variability for one financial institution and for one type of deposit. Thus, our results should be viewed as a first step in studying this question. If data become available, further replication for different areas and different types of deposits, especially demand deposits, should be undertaken. [ABSTRACT FROM AUTHOR]

Current conditions in the money and credit markets, along with the memory of the “crunch” of late 1966, have caused both the managers of financial institutions and their regulators to reconsider their concepts of “liquidity.” Both Minsky and Ritter have argued forcefully that traditional attention paid to balance sheet proportions should be abandoned in favor of an intertemporal analysis of cash flows [6], [7], and [8]. Ritter states that: “With a multidimensional cash flow forecast extending several years into the future, probability estimates can be made regarding potential liquidity needs over time” [8]. The purpose of this paper is to suggest a forecasting method which explicitly deals with the problem of uncertainty. The method is specifically designed for a mutual savings bank, but it could easily be adapted for a savings and loan association and, with perhaps greater effort, a commercial bank.2 In Section I, components of cash inflows and outflows are examined with the general objective of classification according to: (1) degree of uncertainty and (2) degree of management control. A risk analysis simulation model which permits explicit consideration of uncertainty is presented in Section II. Problems of implementing the model are discussed in Section III, while the implications of the analysis for future research are considered in Section IV. [ABSTRACT FROM PUBLISHER]

The article specifies and estimates cost functions for bank trust functions. The author presents a replication of a previous study which includes six-cross sections that were not available in previous bank function studies. The article explains the cost structure of a bank activity which the U.S. Congress has given attention to. The article also discusses empirical estimates of the cost function, a specification of a theoretical model of production and cost, and observed economies of scale. Several equations are provided to help illustrate the study.

Commercial bank portfolio models developed by Hester [6], Porter [11], and Kane and Malkiel [7], among others, relate the structure of an asset portfolio to variation in the level of deposits. Similarly, in a recent application of linear programming to asset management, Cohen and Hammer [3] specify a liquidity constraint based upon deposit fluctuations. However, there have been few empirical studies of the determinants of demand deposit fluctuations. The purpose of this paper is to extend the work of Gramley [4], Rangarajan [12], and Wilkerson [14] on the determinants of deposit variability. In this paper, the analysis will be confined to demand deposit variability. [ABSTRACT FROM AUTHOR]

This article reports on commercial bank lending behavior in relation to the customers' depositing and borrowing decisions. The study uses date from various commercial banks in Massachusetts which provide a convenient set of commercial bank customers for a test of the deposit rate hypothesis. Testing of this hypothesis is difficult because commercial banks do not provide information concerning their individual customers and the relationship between bank and customer in many cases is multi-dimensional. Also, multiple regression analysis was applied to the survey data.

The article examines the impact of various technologies on banks' economies of scale, with particular focus on activities surrounding demand deposits at commercial banks. The authors present a cost function defined in terms of quantity of demand deposit accounts, wage rates, elasticities of output with respect to labor and capital, etc., and test it using data from 956 U.S. banks for 1968. Results indicate the presence of economies of scale for banks that use computers, but not for those that don't. Average costs for banks without computers were lower than for those with, but only when the number of demand deposit accounts was fewer than 10,600.

The article examines the demand for New York State Mutual Savings Bank deposits during the period 1960-1969. Monthly and quarterly levels and changes in savings deposits are regressed against personal income, the rate paid on savings accounts, and the rate available form AAA-rated bonds. The authors discuss their results, and use the regression coefficients to compare actual savings for the first quarter of 1970 with those predicted by their model. In this instance, the "level" equations performed better than the "change" equations.

The abstract is for "Returns to Scale for Commercial Banking Products," by Frederick W. Bell and Neil B. Murphy of Clark University and Federal Deposit Insurance Corporation.

Deposit insurance has spread to many sections of the world. In the newly formed nations of the former Yugoslavia, this has occurred under conditions of post-conflict reconstruction, hyperinflation, and several different governmental structures. Three cases are examined; Bosnia and Herzegovina, Croatia, and Serbia and Montenegro. They all have developed deposit insurance programs. The implementation process was compared to “best practice” recommendations. It is found that the situation in Bosnia and Herzegovina was difficult due to the fractured nature of the Dayton Accord government structure on the one hand but easier to the strong international presence supporting required actions. In the case of Croatia, a unified state emerged from the war, but it was somewhat isolated. Its bank restructuring was costly, and a fragmented deposit insurance program was introduced in the middle of a banking crisis. In the case of Serbia and Montenegro, the bank restructuring process is still underway, and implementation of a functioning deposit insurance program properly awaits its completion. [ABSTRACT FROM AUTHOR]

Examines the experience of savings banks in Massachusetts concerning the form of ownership and risk taking in banking. Relation of the credit quality of loan portfolios to the size and structure of the portfolio and the ownership status of the bank; Influence of cyclical decline in property values on the decline in the credit quality of loan portfolios.

The purpose of this article is to determine the impact of adoption of new technology (ATMs) by households on their behavior in holding transactions balances. Previous studies show that households respond to the availability of ATMs by reducing their currency inventories. Reduced currency needs may be reflected in a reallocation of funds from currency to transactions balances. To test this hypothesis, data from two large household surveys are utilized. It is shown that use of technology has a substantial impact on the transactions balances held by households. [ABSTRACT FROM AUTHOR]

Examines the scale economies of banking in Turkey. Literature on the economies of scale in depository institutions; Per capita productivity of the country; Comparison on the economies of scale of the country with the other countries.

Analyses the efficiency of life insurance agencies in delivering financial services in the United States. Distribution of multiple financial products; Examination of scale and scope economies; Impact of selling mix financial products on scale returns.

In a recent paper in the "Journal of Business" Robert Coates and David Updegraff (C-U) have attempted to examine the hypothesis that there are economies of scale in the use of administrative personnel in organizations. Their tests are based on data for 129 banks for 1969. They generally concluded that indivisibility of administrative input does not exist at least for the organizations in their sample, and no such economies of scale are detected. The purpose of this comment is to indicate that C-U's findings should be seriously questioned for the following reasons: 1. The authors do not discuss the specification of their test equation and seem to confuse the concepts of economies of scale as employed by students of organizational behavior and economists. 2. The findings of studies utilizing more completely developed models contradict C-U's findings. 3. Even accepting the authors' specification, the appropriate interpretation of their evidence is consistent with the notion that indivisibilities in the use of administrative inputs exist.

There have been numerous studies using different procedures to assess the impact of branching on the cost structure in banking. These studies were primarily concerned with the cost impact of branching in the context of a desirable banking structure. The effect of any combination of branching law, entry policy, and merger policy depends upon the cost structure in general, and the relative efficiency of various branching configurations (including, of course, none). However, these studies have not provided either results or a methodology that may be directly utilized in the important task of managing and evaluating the performance of a system of branches. The purpose of this paper is to develop and test (with a large multi-branch system), a model of branch operating costs that may be adapted and utilized by banks in estimating marginal and average costs, evaluating the performance of an existing branching system, and determining the minimal size necessary to justify the establishment of a branch in any specific location. In Section I, there is a discussion of previous studies. Section II contains the model and the data sources. A discussion and interpretation of the results are considered in Section III. Section IV provides the summary and conclusions.

In terms of the raw proportion of successful and unsuccessful borrowers in the survey, it would appear that there is a substantial group of people initially judged credit worthy by a finance company who were subsequently denied financing by other lenders. This result is consistent with the view of the National Commission on Consumer Finance that the imposition of rate ceilings tends to lead to a reduction in the availability of credit.
However, the multivariate analysis of the successful and unsuccessful borrowers in this study supports Benston's work [2]. That is, in terms of the characteristics that were available and which are typically used in credit scoring models, there does not seem to be a systematic relationship between denials and the measures reflecting credit worthiness. Finally, when the group of successful applicants is disaggregated by the type of institution making the loan, there is little evidence to support the hypothesis of market risk segmentation. It is still not possible to predict which loans would be made, let alone by which institution. The one noticeable difference is that commercial banks make a higher proportion of automobile loans than credit unions or finance companies. However, the reasons for the loan are not sufficient to separate the accommodated and nonaccommodated groups. [ABSTRACT FROM AUTHOR]

When the market structure of an industry is regulated, it is very important to assess the impact on the performance of changes in that structure. Commercial banking is such an industry and recent legislation and court cases and have focused attention on some of the problems of evaluating proposed market structure changes, especially mergers. In several studies, there have been attempts to estimate the effect of changes in concentration on prices of various bank services. Unfortunately, these studies are at best inconclusive. Their basic shortcomings are two-fold. The cost of production of the particular banking service has not been considered explicitly. The authors have shown elsewhere that cost has a significant influence on prices of regular demand deposit accounts. Researcher G.J. Benston has also demonstrated the crucial role of costs in determining the interest rates charged on business loans. Since unit costs of production vary across areas the authors have urged that cost be considered if the partial influence of concentration is to be evaluated. In this article is presented and tested a model in which a homogeneous measure of output (the standardized regular checking account) is specified, the cost of production is included as an explanatory variable and several measures of concentration are tested.

The purpose of this paper is to estimate cost functions for the U.S. passenger airline industry in order to determine the sources of recent observed productivity, increases. A cost function is derived from the Cobb-Douglas production function, and the parameters of that reduced form equation are estimated. Special attention is given to effect of technology on costs. In general, it was found that there seem to be no scale economies present in the production of available seat miles, but that the level of technology has a substantial impact on cost and productivity. [ABSTRACT FROM AUTHOR]

Provides estimates of the cost structure of all commercial banking firms in the Northeastern United States. Effect of bank regulation on the inter- and intraregional cost structure of commercial banks; Relation between market structure and price for commercial banks; Variation of cost between market areas.

In this article, we will show that commercial banking, a labor intensive service industry, is a case in which economies of scale are present, output is determined by the extent of the local market, and division of labor occurs. First, we will describe the results of tests for economies of scale in banking. Second, the source of scale economies will be discussed. Finally, we shall subject the division of labor hypothesis to empirical testing.
In this article we have attempted to extend the work on economies of scale in banking, a labor intensive service industry, beyond the measurement phase to an explanation for observed economies of scale. The division of labor hypothesis first formulated by Adam Smith almost 200 years ago was subjected to empirical tests. This was done by constructing a skill mix index by function for a sample of banks which were previously tested to detect economies of scale. It was found that the index of skill was consistently and significantly inversely related to scale, indicating that a division of labor takes place as output expands. In addition, it was found that higher wage rates induced a substitution of lower skill levels. Finally, there seemed to be no significant relationship between the skill mix and the branching structure of the firm, earlier investigators presumably having confused scale and branching effects. To this extent our knowledge of banking operations is improved, as is, hopefully, our understanding of the production process in the service industries. [ABSTRACT FROM AUTHOR]

The author comments on the article "Costs of Banking Activities: Interactions Between Risk and Operating Costs," by Ernst Baltensperger. The author offers criticism towards Baltensperger's article. An overview of Baltnesperger's article is presented. It is the author's belief that in commercial banking there are many difficulties in trying to construct an integrated theory of the banking firm that treats liquidity management, portfolio selection, pricing policy, and physical production processes simultaneously.

In the paper "Sources of Productivity Increases in the U.S. Passenger Airline Industry," a log-linear cross-section function was estimated with several independent variables of the "dummy" or "shift" form. In this type of estimating procedure, the dummy variable is interpreted as a shift in the intercept due to some discrete event that is thought to influence the dependent variable. However, the intercept of the estimated linear transformed equation is a multiplicative factor in the equation before transformation. The nontransformed equation, of course, has no intercept. For this reason, the impact of technical change on cost cannot be determined from the equation directly. Using some values for each of the continuous independent variables, use the equation to calculate cost. In this case the mean values of the logarithm were used. If the value of each of the dummy variables is zero, then this calculated cost is interpreted as the expected annual cost of running a propeller driven plane for the sample geometric seat miles, fuel-cost, etc. Replicate this procedure with the addition of a value of unity for the first dummy variable. This is interpreted as the expected annual cost of running a turboprop plane for the sample geometric mean values of the continuous independent variables.

The article discusses the production and sale of wholesale commercial banking services which include banks that handle small numbers of large accounts by constructing product and cost models for wholesale banking products. The study uses the models to calculate the revenue, costs, and financial capital associated with servicing each customer's business. Analysis of customer relations is accomplished with the study of price behavior for the sale of wholesale banking products, and the policy implications for the production, cost and pricing models is examined.