Financial costs, operating costs, and specialization of Spanish banking firms as distribution dynamics

Abstract

There exists a remarkable concern among financial analysts and policy makers about the high level of cost dispersion in banking. A model of distribution dynamics is applied to the Spanish banking companies in order to analyse whether such a dispersion is so high and if some factors like, for instance, specialization factors might somewhat influence the dynamics of both financial and operating expenses. Results show that there does not appear to exist a decrease in the level of cost dispersion, although firms' relative positions are changing. Yet, when controlling for the varying output mixes, firms produce results which differ much, as dispersion - assessed by means of density functions estimated nonparametrically - decreases substantially, suggesting concurrence is higher among firms with similar output mixes.