“Agency problems” refers in this context to divergences in the incentives of management and shareholders that create possibilities for management to make decisions in their own, rather than shareholders’, interests, as well as for potentially expensive monitoring mechanisms for shareholders seeking to limit agency costs.
BIS central bankers’ speeches  3  Consider, in this regard, my observation of a moment ago that a large balance sheet may reduce a bank’s cost of capital. If lower funding costs do result from the diversification of risks and funding sources made possible by a large balance sheet, they would indeed suggest the existence of scale economies.