Bank Mergers in Chile: A Pro?t Efficiency Assessment

During the last two decades, the Chilean banking industry has experienced a high concentration due to several mergers between its institutions. Among the reasons ar- gued for these consolidations, a potential for substantial gains in e¢ ciency is claimed. Recent studies suggest that the Chilean banking system indeed exhibits such a po- tential for the so-called X-efficiency, rather than for the traditional scale and scope economies. The aim of this study is to empirically evaluate the e¤ects of the bank mergers materialized in Chile during the last 20 years on this class of efficiency. To this end, we apply a methodology based on the frontier pro?t function approach which allows us to compare previous and posterior scenarios to the merger. Our results show, in general, a positive e¤ect of bank mergers on e¢ ciency standards. This suggests that the reduction of ine¢ ciencies X should be an important element to consider when evaluating these processes from both a private and an antitrust policy perspective.