Deposit insurance does not give banks a significant government subsidy, the final version of an Office of the Comptroller of the Currency study concludes.

If a subsidy existed, management would take advantage of it by locating all businesses within the bank, writes Gary Whalen, the OCC's deputy director of research, who published his preliminary findings in December.

But bankers do not prefer the bank to a holding company subsidiary, he writes. For example, most institutions locate consumer finance units in holding company units and mortgage companies in the bank.

Mr. Whalen also writes that banks would dominate any business they operate directly if a deposit insurance subsidy existed. But he notes that banks have been losing market share to nonbanks for years.

"The net insurance-related subsidy enjoyed by the typical bank is minimal, possibly negative at this time," he concludes.

For a copy of "The Competitive Implications of Safety Net-Related Subsidies," call 202-874-5043.

Even megamergers result in economies of scale, according to researchers.

Past studies have concluded that economies of scale disappear once an institution surpasses $1 billion of assets. But four economists find those studies were flawed because researchers assumed banks merge to maximize profits, but in reality banks combine to diversify risks.

Joseph P. Hughes of Rutgers University, William W. Lang of the Comptroller's Office, Loretta J. Mester of the Federal Reserve of Philadelphia, and Choon-Geol Moon of Hanyang University incorporate this concept into their statistical model and find that even the largest bank mergers resulted in some economies of scale.

For a copy of "Recovering Technologies that Account for Generalized Managerial Preferences: An Application to Banks that are Not Risk Neutral," call 202-874-5043.

Federal Reserve Bank of San Francisco economist Elizabeth Laderman has debunked a theory used to explain why consumers are keeping fewer assets in bank accounts.

Under the theory, bank deposits have fallen because the percentage of the population under 35 years old or over 65 years old has shrunk. These are the age groups that historically keep most of their assets in banks.

Mr. Laderman, using new data from the Fed's Survey of Consumer Finance, finds the industry's problem is even worse. Not only are there more middle- aged people, but these people are keeping an even smaller share of their assets in banks today than in 1983. This means consumers have fundamentally changed their investment habits and banks are unlikely to recapture these assets once middle-aged people retire, she said.

For a copy of "Deposits and Demographics?" call 415-974-2163.

A strong, independent central bank is the only way to prevent high inflation in democratic countries, three economists write.

Voters, especially in countries where there is a wide gap between the incomes of the richest and poorest citizens, will push lawmakers to adopt inflationary policies because this will boost their real incomes.

This outcome is inevitable unless the country creates a politically neutral central bank, according to Federal Reserve Bank of Dallas economist Mark A. Wayne and Southern Methodist University economists Gregory W. Huffman and Jim Dolmas.

For a copy of "Inequality, Inflation and Central Bank Independence," call 214-922-5254.

Research Scan runs on the second and last Friday of the month. Submissions should be sent to American Banker, 1325 G St., NW, Suite 900, Washington, D.C. 20005.

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