ECONOMIES OF SCALE AND SCOPE IN THE SECURITIES INDUSTRY

Economies of scale and scope for the securities industry are estimated for the first time using previously unavailable survey data and employing the translog multiproduct cost function model. The results reveal economies of scale for smaller specialized firms and diseconomies of scale for larger more diversified firms. Economies of scope do not appear to be important in the industry. If the Glass-Steagall restrictions are relaxed, the results suggest that banks can enter the securities industry with a brokerage division of moderate scale of about $30 million in revenues. The five million in new equity required suggests that only banks with assets over $1 billion and over $60 million in capital can enter the industry with a relatively modest investment. There are, however, a substantial number of banks with over $1 billion in assets who can be considered as potential entrants. © 1991.