Economies or diseconomies of scope in the EU banking industry?

Abstract Banks’ business models are assumed to affect efficiency, as documented in the banking supervisory priorities of the European Union (EU) for 2016–2018 and the 2014 structural reform proposal for the EU banking sector. We investigate evidence of economies and diseconomies of scope for the EU. We find cost economies of scope and revenue diseconomies of scope, resulting in profit diseconomies of scope. Separating commercial from investment activities generates economic inefficiencies on costs but efficiencies on revenues and profits. Economies of scope are affected by bank size, liquidity, competition in the banking industry, and the European sovereign debt crisis.