Last week, Charles Calomiris wrote an op-ed in the Wall Street Journal arguing that big banks are better for various reasons. Simon wrote last week saying that Calomiris underestimated the political dimension, and that his proposed solution — a cross-border resolution mechanism for large institutions — is the policy equivalent of assuming a can opener.

I wanted to look at Calomiris's specific claims. I think I've already dealt with the myth that banks "need to be large to operate on a global scale—and they need to do so because their clients are large and operate globally." Calomiris also argues that there are economies of scope (it's better to be big because you can play in multiple businesses). Here's his evidence:

"True, some empirical studies in the field of finance have failed to find big gains from mergers. But those studies measured gains to banks only, and measured only the performance improvements of recently consolidated institutions against other institutions, many of which had improved their performance due to previous consolidation.

"Yet even unconsolidated banks have improved their performance under the pressure of increased competition following the removal of branching restrictions, which permitted the consolidation wave in banking. And when an entire industry is involved in a protracted consolidation wave, the best indicator of the gains from consolidation is the performance of the industry as a whole. One study of bank productivity growth during the heart of the merger wave (1991-1997), by Kevin Stiroh, an economist at the New York Federal Reserve, found that it rose more than 0.4% per year."

Note that Calomiris concedes that you can't find benefits from mergers by looking at merged banks directly; this is why he falls back on an industry average.

First of all, there must be a joke to be made here about correlation and causality. Wait, here it is.

Second, 1991-97 was only the beginning of the merger wave; The Riegle-Neal Interstate Banking Act wasn't passed until 1994. Let's assume that mergers after 1995 wouldn't show up in the 1991-97 data. That includes Nations-Boatmen's, Nations-Barnett, Nations-Bank  of America, B of A-FleetBoston, Chemical-Chase, Bank One-First Chicago, J.P. Morgan-Chase, Wells-First Interstate, Wells-Norwest, and Wachovia-First Union.