Economies of Cost in the UK Building Society Industry

Abstract

In recent years the UK building society industry has seen increases in the competitive nature of financial services,especially from other non mutual intermediaries. The decreasein the availability of retail deposits, a traditional source of fundsfor building societies, has led many to consider. merging operations. It is the aim of this paper to determine whether there were eficiencies in merging by considering economies of costs in the industry. We discuss the averuge cost structure of the industry and estimate a cost equation that has no a prior theory regarding the underlying cost structure of societies. This equation allows a comparison with previous research of the industry that have followed specific modelling methodo1ogies.