Changes in the Cost of Intermediation: The Case of Savings and Loans




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    • R. L. B. Le Compte is from the W. Frank Barton School of Business, Wichita State University. S. D. Smith is from the College of Management, Georgia Institute of Technology, and is a visiting scholar at the Federal Home Loan Bank of Atlanta. We would like to thank David B. Humphrey, Yea-Mow Chen, Stephen G. Timme, an anonymous reviewer, and participants at the Federal Reserve Bank of Atlanta workshop for their helpful comments on earlier versions of the paper. The views expressed here do not necessarily reflect those of the Federal Home Loan Bank of Atlanta. Any errors or ambiguities are, as usual, our responsibility.


The minimum cost output configuration for a firm may change as the result of a variety of factors, including changes in market structure. In this paper we test this structural change hypothesis with savings and loan data. We find support for the hypothesis that separable, constant returns to scale production functions characterize the average savings and loan in our sample in 1983. This is in contrast to the cost complementarities found in 1978. We argue that this result may be the result of regulatory changes that allowed savings and loans to alter their production mix to fully capture the benefits of joint production.