tag:blogger.com,1999:blog-235433516644980443.post7572987773067741187..comments2024-03-27T05:08:10.195-04:00Comments on Jeff For Banks: Banking Economies of Scale RevisitedJeff Marsicohttp://www.blogger.com/profile/12153599647481141591noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-235433516644980443.post-2064670143300821852019-10-17T23:23:10.703-04:002019-10-17T23:23:10.703-04:00Banks have step-variable cost structures, where th...Banks have step-variable cost structures, where they buy large chunks of capacity at once. There are two types of activity, origination and maintenance. Technology and productivity improvements increase capacity and therefore banks don't often perform at peak capacity, in my experience. When they do, they purchase chunks (either tech or additional staff). Most times, spikes of volume can mop up excess capacity... and also overtime, etc. The key challenge to banks is to shift a very high percentage of fixed costs to be more variable, therefore allowing them to reduce costs in times of low utilization.<br /><br />That was a pretty wonky answer. Best I can do tho'! Thanks for the question.<br />Jeff Marsicohttps://www.blogger.com/profile/12153599647481141591noreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-74045203201978923122019-10-15T17:56:02.975-04:002019-10-15T17:56:02.975-04:00Hi Jeff. I stumbled upon your blog as I was curiou...Hi Jeff. I stumbled upon your blog as I was curious about bank's cost structure and how do banks think about cost because when we teach management accounting, most of the cost structure applications is based on manufacturing sector.<br /><br />The question that I have is given that more than 50% of the cost is human resources (as you mentioned in one of your other blogs), how do banks respond to situations when they have sudden increase in inflow of deposits, say during the shale boom. One possibility is they might wait to see whether the effects are persistent and use the current capacity because from what you say looks like there is excess capacity and this windfall liquidity inflow can be taken care off or the banks can expand by hiring employees, opening branches, etc. once they observe that the shale boom effect is persistent. I am curious to know your views and also on banks cost responses to uncertainty. hariharanhttps://www.blogger.com/profile/11691742662246564329noreply@blogger.com