Evaluating the productive efficiency and performance of US commercial banks (original) (raw)
Related papers
2009
approved: _____________________________________________________________________ Victor J. Tremblay In this paper, I estimate efficiency and productivity change in the U.S. banking industry. The data consist of annual observations of 25 banks from 2004 to 2008. The paper follows a two-stage procedure. In the first-stage, utilizing the non-parametric methodologies, input-oriented Data Envelopment Analysis (DEA) model and DEA based Malmquist indices are used to estimate the efficiency scores for each bank in the sample. Further, the productivity index is decomposed into technical efficiency and technological change components. In the second-stage, I use Tobit censored regression to determine the impact of ‘environmental’ factors on banks’ efficiency. The results of DEA suggest that U.S. banks experienced an average annual productivity growth of almost 9 percent over the sample period as well as that the dominant source of efficiency is technological change (TC) which shows 10.8 percent...
Measuring bank efficiency: DEA application
Technological and Economic Development of Economy, 2014
The paper aims to improve the methodology of measuring efficiency of Latvian banks. Efficiency scores were calculated with application of non-parametric frontier technique Data Envelopment Analysis (DEA). Input-oriented DEA model under Variable Returns to Scale (VRS) assumption was used. Potential model variables were selected based on the intermediation and profitability approach. Fourteen alternative models with different inputs-outputs combinations were developed for the research purposes. To substantiate the variables selection for DEA model the received data was processed, using such methods, as correlation analysis, linear regression analysis, analysis of mean values, and two-samples Kolmogorov-Smirnov test. The research results assisted the authors in providing general recommendations about the variables selection for DEA application in the Latvian banking sector. The present research contributes to the existing analytical data on bank performance in Latvia. The empirical fin...
Assessing efficiency profiles of UK commercial banks: a DEA analysis with regression-based feedback
Annals of Operations Research, 2018
Data envelopment analysis (DEA) has witnessed increasing popularity in banking studies since 1985. In this paper, we propose a new DEA-based analysis framework with a regression-based feedback mechanism, where regression analysis provides DEA with feedback that informs about the relevance of the inputs and the outputs chosen by the analyst. Unlike previous studies, the DEA models used within the proposed framework could use both inputs and outputs, only inputs, or only outputs. So far, the UK banking sector remains relatively under researched despite its crucial importance to the UK economy. We use the proposed framework to address several research questions related to both the efficiency of the UK commercial banking sector and DEA analyses with and without regression-based feedback. Empirical results suggest that, on average, the commercial banks operating in the UK-whether domestic or foreign-are yet to achieve acceptable levels of overall technical efficiency, pure technical efficiency, and scale efficiency. On the other hand, DEA analyses with and without a linear regression-based feedback mechanism seem to provide consistent findings; however, in general DEA analyses without feedback tend to over-or underestimate efficiency scores depending on the orientation of the analyses. Furthermore, in general, a linear regression-based feedback mechanism proves effective at improving discrimination in DEA analyses unless the initial choice of inputs and outputs is well informed. Keywords Data envelopment analysis • Efficiency • UK commercial banks • DEA models without explicit inputs • DEA models without explicit outputs B Jamal Ouenniche
Efficiency Analysis of Commercial Banks using the Data Envelopment (DEA) Model
Efficiency analysis of organizations is a cardinal activity both in theory and practice. Commercial banks play a vital role in the economy of a country. Their efficiency is eventually transmitted to an efficient mechanism of allocation of scarce financial resources to the business and industry. Evaluation of bank's efficiency is an ongoing activity performed by all the stakeholders such as the management of the bank itself, the central bank as the main regulator, the rating agencies, and the financial market analysts working for different investment and banking institutions. Bank's efficiency is usually gauged with conventional methods of financial ratio analysis. This research paper undertakes the efficiency analysis of Pakistan's commercial banks on a particular methodology called " Data Envelopment Analysis " (DEA). The model has been successfully employed for assessing the relative performance of a set of firms that use a variety of identical inputs to produce a variety of identical outputs. The type of firm may include; manufacturing units, departments of big organizations such as universities, schools, banks, bank branches, hospitals, power plants, police stations, tax offices, prisons, defense bases, and even practicing individuals. The bank efficiency is first analyzed on the basis of single factors and then on the basis of multiple factors. The DEA model employs non-parametric methodology to gauge the efficiency of an organization. All of the 26 Pakistani commercial banks, which are registered with the State Bank of Pakistan, have been included in the study. The analysis is based on data obtained from the published annual reports of the commercial banks for the year ended 31 December, 2015. As per the findings, the top five commercial banks exhibiting the highest level of relative efficiency are; Standard Chartered, Habib Metropolitan, HBL, MCB, and UBL..
An enhanced DEA model for decomposition of technical efficiency in banking
Annals of Operations Research, 2011
Past studies about the application of data envelopment analysis (DEA) to banking performance often follow the concept of technical efficiency (TE) and/or the productivity defined by the TE. In this paper, we propose an enhanced DEA model, based on a modification of the directional distance function by simultaneously but disproportionately seeking the maximum expansion of each desirable output and contraction of each undesirable output for efficiency measurement, which allows us to decompose the TE into operating efficiency (OPE) and risk management efficiency (RME). The OPE characterizes the ability of a bank to expand the room for profits through its regular business activities, while the RME describes a bank's ability in risk management activities for sustaining operations. To illustrate the usefulness of the proposed model, a case study of Taiwan's domestic commercial banks is presented. The major findings are that operating inefficiency is the main source of technical inefficiency, although banks with a higher OPE generally also have a higher RME. Banks subordinate to financial holding companies are more efficient in both OPE and RME than stand-alone banks.
2016
The present paper examined the review of literature related to measuring relative efficiency of banks using data envelopment analysis (DEA). The efficiency of banks is measure through the ability of the individual bank to maximise output given a certain level of input. By measuring its efficiency, it can serves as early warning or benchmark of its performance and it can define future improvement in various area such as managerial, technology or socioeconomic. DEA is comprises of two basic model that are DEA Charnes-Cooper-Rhodes model with constant return to scale assumption and DEA Banker-Charnes-Cooper model with variable return to scale assumption. In banking industry, DEA is using two approaches that are production or intermediation approach. The former highlights banks as delivering services in the form of transaction and the later assumes banks intermediate funds between surplus units to deficit unit. The study of efficiency in banks with similar economic and political conditi...
Economic Themes, 2018
Measurement and evaluation of the bank’s operations efficiency requires analytical techniques that provide data beyond those available from the standard analysis of financial statements. The Data Envelopment Analysis (DEA) is a mathematical programming technique that offers valuable insights in finding inefficient banks taking into account the scope of the services and resources used to provide these banking services. The results of the DEA analysis can provide significant information to the bank’s management that can supplement the information obtained using traditional techniques for assessing efficiency. The assessment of banks’ efficiency in the Republic of Serbia is of particular importance due to intense competition and implemented banking reforms. Therefore, in this paper DEA analysis will be applied for the examination and assessment of the efficiency of the operations of Serbian banks during the period 2014-2016. The analysis will show which of the banks operates efficientl...
Purpose -The purpose of this paper is to discuss a comprehensive literature survey of studies focusing on the efficiency and productivity of the banking sector using parametric and non-parametric frontier techniques. Design/methodology/approach -Critically reviewing 106 studies published across the world from 1994 to 2011, a conceptual framework is developed for the studies assessing the efficiency and productivity of the banking industry using non-parametric DEA frontier approach. Findings -Both the frontier approaches, parametric and non-parametric, are gaining an edge over the traditional financial performance measures. In the non-parametric approach, data envelopment analysis (DEA) is widely applied to measure a bank's efficiency and productivity. Studies conducted in developed countries such as the USA, the UK and Europe are now emerging with the new concepts of banking efficiency. Research limitations/implications -These findings are based only on the critical review of 106 studies. This study suggests the direction for future research and identifies the gap in existing literature with the development of a conceptual model. Originality/value -This study is original in nature and included literature published in recent issues of 2011. Efficiency and productivity QRFM 5,2 196 banking industry of developed nations like the USA, the UK, Europe. Developing nations are also gaining attention of researchers as within India only, 24 studies were conducted by the eminent researchers during pre and post liberalization periods of Indian banking sector (Bhattacharyya et al.
International Journal of Business, Economics and Management, 2016
Objective: This paper provides a survey of efficiency in banks using Data Envelopment Analysis (DEA) in developed and developing countries. Methods: There are two ways were used; the first one is analyse previous reviews, and the other one is systemic search from ProQuest, Emerald, Scopus and Science Direct. The search conducted to identify efficiency in banks in developed and developing countries. Originality: This study contributes in the existing literature in measuring efficiency in banks using DEA as a non-parametric technique. Results: Studies that was survey showed that the score of allocative efficiency was more than technical and cost efficiencies. Also, Studies showed that the scores of cost efficiency were more than the scores of profit efficiency. Conclusion: This paper shows that most of these studies were conducted in developed countries context, Also many studies were in developing countries. But, very few studies were conducted in the context of banking industry in Arab countries.
Data envelopment analysis: a tool for monitoring the relative efficiency of Lebanese banks
2008
This paper implements a Data Envelopment Analysis (DEA) approach to measure the relative performance of Lebanese banks over an 8-year period (1997 to 2004). It also demonstrates DEA as an effective monitoring tool for central banks to track banks' efficiencies to maintain a sustainable growing sector and to provide early warning signals for a potentially at risk bank. DEA input and output parameters are identified for the Lebanese banking sector as an intermediary player between savers and investors. For each bank, a DEA efficiency score is computed, decomposed into technical and scale efficiencies, and tracked on a yearly basis. During the period of this study, some banks failed and closed, and some merged and acquisitioned, hence characteristics of failed and merged banks are investigated with a close attention to their technical efficiency patterns. We conclude with a positive recommendation on the usage of DEA and highlight future research directions.