Theoretical And Empirical Analysis Of Economic Of Scale About Chinese State-owned Commercial Bank

George Benston and Peter S. Rose think that there is economic of scale in the banking industry. China's state-owned commercial banks'assets and institutions have been expanding rapidly, their indicators of performance also continues improving. While the state-owned commercial banks have been expanding in size, do they achieve the stage of economic of scale? It is just the purpose of this study.Economic of scale of commercial bank is that while a commercial bank's output increases, the average cost of production declines under some external constraints. Commercial banks'output are their loans and investments, and their cost consists of cost of production and transaction costs. Factors influencing economic of scale of commercial banks include the external ones, effective market demand and supervision for commercial banks, and internal factors, mainly the advanced technology of production (especially information technology) and management capabilities.After analyzing the four state-owned commercial banks'indicators of scale and performance ,using the four state-owned commercial banks'panel data of 1993-2008 and TCF, this paper studies China's four major commercial banks'economic of scale. Our research shows that although in the nineties China's four state-owned commercial banks were running inefficiently, and did not achieve economic of scale, now they have realized it .It is because of China's economic development, the expansion of demand for loans, improving banking management skills and advanced technology.The four state-owned commercial banks achieve the stage of economic of scale, and there is the possibility of further improvement. However, they are now facing two questions, in the financial crisis the reaction of the real economy to commercial banks and financial restructuring. Finally, it makes some recommendations to improve the economic of scale, which are maintaining fair competition in the market, to speed up financial innovations, to promote mergers and acquisitions, gradually changing structure of state-owned commercial banks, to deepen the reform of bank ownership, and improving corporate governance of state-owned commercial banks.