Abstract
We estimate a global cost function using an international database of commercial banks to test for economies of scale and scope. Banks he segregated into those headquartered in "functionally se~arated" countries, which limit commercial banks from engaghg h non-traditional banking activities, and into "functionally integrated" banking countries, which permit some form of universal banking. Using data for 1988, the results show economies of scale to exist only for small and representative (middle quartile) banks in functionally integrated banking countries. Moreover, we investigate the potential for cost savings from combining traditional banking (lending) activities with non-banking financial activities. Evidence of economies of scope is found between lending and invesbnentltrading activities. Significant diseconomies of scope are found for combmations of real estate/msurance with investment banking activities. Country by country analysis is generally consistent with these results with the notable exception of the U.S. in which signir'canl economies of scope were found for all product lines: lending, real estatelmurance, and securities/mvestment banking.