90,947 research outputs found

    Decomposition of the efficiency of the Chinese state-owned commercial banks at the provincial level

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    This study adopts a bank production function approach to the measurement of banking efficiency at the provincial level in the Chinese state-owned commercial banking sector from 1998 to 2003. Applying Data Envelopment Analysis and efficiency decomposition analysis, this paper has revealed a significant level of pure technical input inefficiency and, to a lesser extent, scale inefficiency across the provincial branches of all the banking groups. The study has also uncovered the extent of inefficiency in individual banking inputs and provincial branches. Finally, the provincial-level efficiency is further decomposed into within-banking-group and between-banking-group effects

    The Impact of Regional and Demographic Factors on the Efficiency of German Savings Banks

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    This paper examines the influence of environmental factors on technical, cost, scale and revenue efficiency of German savings banks in 2001‐2005. Taking into account growing regional disparities in economic wealth and population size, it differentiates between declining and growing regions. Regional and demographic factors explain part of the variation in efficiency levels. Population density and branch penetration positively affect efficiency in growing regions. A negative impact of economic power and a positive impact of competitive pressure on efficiency support the quiet life hypothesis. In declining regions, a larger share of elder people reduces bank efficiency. Savings banks seem to be well adapted to unfavorable environmental conditions.savings banks, efficiency, Data Envelopment Analysis, demographic change, regional disparities

    Inside the Black Box: What Makes a Bank Efficient?

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    A decade of econometric research has shown that X-efficiency dominates scale and scope as the drivers of inefficiency in the U.S. banking industry. However, this research falls short in explaining the causes of the high degree of X-efficiency in the industry. This paper summarizes a four-year research effort to understand the drivers of this inefficiency. Key findings from this research, based on the most comprehensive studies to date of management practices in the retail banking industry, give insight into the drivers of X-efficiency. The paper provides a comprehensive framework for the analysis of X-efficiency in financial services. This paper was presented at the Wharton Financial Institutions Center's conference onRetail Banking, Services, Efficiency, Technology Management, Human Resource Management

    Efficiency, Profitability and Quality of Banking Services

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    This paper develops a general framework for combining strategic benchmarking with efficiency benchmarking of the services offered by bank branches. In particular, the service-profit chain is cast as a cascade of efficiency benchmarking models. Three models-based on Data Envelopment Analysis (DEA)-are developed in order to implement the framework in the practical setting of a bank's branches: an operational efficiency mode, a quality efficiency model and a profitability efficiency model. The use of the models is illustrated using data for the branches of a commercial Bank. Empirical results indicate that superior insights can be obtained by analyzing operations, service quality, and profitability simultaneously than the information obtained from benchmarking studies of these three dimensions separately. Some relations between operational efficiency and profitability, and between operational efficiency and service quality are investigated. This paper was presented at the Financial Institutions Center's conference on Performance of Financial Institutions, May 8-10, 1997.

    Relationship Lending, Distance and Efficiency in a Heterogeneous Banking System

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    During the last decades banks have progressively moved towards centralized and hierarchical organizational structures. Therefore, the investigation of the determinants of bank efficiency and relationships with the functional distance between the bank head-quarter and operational units have become increasingly important. This paper extends the literature on bank efficiency examining the impact of different bank business models on the efficiency of the Italian banks, distinguished by size and type over the period 2006-2009. Using a stochastic frontier approach, the intertemporal relationships between bank efficiency and some key variables, as distance and income diversification (used as proxies of different organizational banking models) are investigated. Results suggest that organizational structure significantly affects cost efficiency, being different between bank groups.relationship lending; bank groups; credit risk; stochastic frontiers; panel data

    Risk and Regulation: The Efficiency of Italian Cooperative Banks

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    In this paper we analyse the determination of cost efficiency in a sample of Italian small banks located in different geographical areas and including two great institutional categories: cooperative banks (CB’s) and other banks. We highlight the effect of environmental factors (asset quality, local GDP per capita) on banks’ performance, and provide novel evidence in favour of the “bad luck” hypothesis suggested by Berger and De Young (Journal of Banking and Finance, 1997). Local GDP per capita strongly affects the territorial differentials for technical efficiency, especially for CB’s. This can be easily rationalised, as current regulations hamper CB’s vis-à-vis other banks in their capability to diversify territorially. Our estimates provide us with a tentative quantitative measure of the costs of missing diversification, ranging between 2 and 7 percentage points. Correspondingly, our evidence suggests that there is potentially strong endogeneity in some currently available bank performance indicators.Cooperative banks, Cost efficiency, Local shocks, Territorial diversification

    Performance in Consumer Financial Services Organizations: Framework and Results from the Pilot Study

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    Financial services comprise over 4 percent of the gross domestic product of the United States and employ over 5.4 million people. By offering vehicles for investment of savings, extension of credit and risk management, they fuel the modern capitalistic society. While the essential functions performed by the organizations that make up the financial services industry have remained relatively constant over the past several decades, the structure of the industry has undergone dramatic change. Liberalized domestic regulation, intensified international competition, rapid innovations in new financial instruments and the explosive growth in information technology fuel this change. With this change has come increasing pressure on managers and workers to dramatically improve productivity and financial performance. This paper summarizes the first year of a multi-year effort to understand the drivers of performance in financial services organizations. Financial services are the largest single consumer of information technology in the economy, investing $38.7 billion dollars in 1991 (National Research Council, 1994). While this investment has had a profound effect on the structure of the industry and the products it provides, its effect on financial performance of the industry remains elusive. Why this "productivity paradox" (Brynjolfsson and Hitt,1993) exists is an important part of this project. The authors describe the differences in productivity in services from manufacturing. In the service world, the consumer co-produces the product with the firm, ofte nadding labor to the creation of the service. In addition, the scope of the service enterprise typically is quite vast, with components of the service production process being both producers and deliverers of the service. In addition, the quality of the services provided is forever changing. Thus, the authors suggest that productivity gains from human resource improvements or technology investments may not show up in standard performance measures, but may rather be used to improve the quality of the service provided. What appears to be a stagnation in productivity may actually be an increase in value delivered to the customer. Delivering value to the customer may provide the institution with sales opportunities and much needed information about the institution's customer base. The pilot survey conducted by the authors examines the relationship between technological advancement and the relational part of service delivery by studying time spent with the customer in relation to technological sophistication and time spent on the entire delivery process. The authors adopt the view that processes are the central "technology" of an organization. As with any technology, the process must be maintained. After a process has reached its useful life, it should be scrapped or rebuilt. Thus, the authors suggest that researchers should take a life-cycle view of processes when undertaking efficiency studies. The authors rely heavily on a process-oriented methodology in their analysis of performance drivers in financial services. The study does not focus on traditional measures of productivity or financial performance. Rather, the authors base comparisons on intermediary measures which evaluate the drivers of performance from the perspective of all participants in the co-productive process. This pilot study starts with consumer financial services and in particular, retail banking. The authors review the relevant literature on financial services performance and then propose a conceptual framework for the study. The framework assumes that industry conditions and firm strategy are given. The authors focus is to examine the components of performance that managers can affect, given a strategy and industry operating conditions. Thus, their initial focus is guided by their desire to direct attention to issues of implementation and their effects on performance. The authors attempt to bridge the gap between traditional productivity measures and difficult-to-measure financial performance by developing a set of value creation components as an intermediary set of performance indicators. Based on pilot interviews, these indicators reflect effective performance in ways that are more meaningful than the more traditionalmeasure of productivity, as they are the goals toward which bank management strives. The key values the study attempts to measure are customer convenience, precision, efficient cost structure, adaptability and market penetration. The survey conducted by the research team benchmarks two types of management decisions that are presumed to drive these outcomes. The first set of management choices are implementation choices, human resources choices, technology implementation processes and product/servicedelivery processes. The second set of choices relates to management infrastructure, resource management processes, the information architecture of the firm, the performance management and control systems and the organizational structure of the firm. Based on interviews and the work of previous productivity studies, the research team developed a pilot survey focused on the practices of the functional areas, business lines, product groups and the retail distribution network. The pilot measured the outcomes and choices made by managers in seven large commercial banks. The pilot results will lead to a large scale survey of practices for the entire retail banking sector. Based on early pilot results, the researchers concluded that managers in consumer financial services firms typically assume that improvement in one area of performance is largely at the expense of decreased performance in other areas. The authors believe this is only partly true. Based on the pilot results, the authors believe that better management practices can move outcomes in a number of areas simultaneously. Through effective process design, use of technology and management of human resources, institutions can improve performance in multiple categories. The successful financial services organizations will be those which find processes and practices that enhance multiple measures of performance. The results of the large scale survey of practices will be available in early 1996.

    Efficiency of Financial Institutions: International Survey and Directions for Future Research

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    This paper surveys 130 studies that apply frontier efficiency analysis to financial institutions in 21 countries. The primary goals are to summarize and critically review empirical estimates of financial institution efficiency and to attempt to arrive at a consensus view. We find that the various efficiency methods do not necessarily yield consistent results and suggest some ways that these methods might be improved to bring about findings that are more consistent, accurate, and useful. Secondary goals are to address the implications of efficiency results for financial institutions in the areas of government policy, research, and managerial performance. Areas needing additional research are also outlined.

    Safety, soundness, and the evolution of the U.S. banking industry

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    Although the banking system appears to be safer and sounder today than it was two decades ago, new risk challenges have arisen that could not have been anticipated in the 1980s. This article outlines the fundamental structural changes in the U.S. commercial banking industry since then. ; The author's strategic analysis of the current state of the industry compares the "transactions banking" business model practiced by large financial companies to the more traditional relationship-based banking business model. In particular, the author focuses on the different production technologies, product mixes, strategic behaviors, and risk-return trade-offs that characterize these two opposite approaches. In closing, the article discusses what these new developments may mean for the industry's ongoing safety and soundness.Banks and banking ; Bank supervision

    Mergers Among German Cooperative Banks. A Panel-based Stochastic Frontier Analysis

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    Based on an unbalanced panel of all Bavarian cooperative banks for the years of 1989-97 which includes information on 283 mergers, we analyze motives and cost effects of small-scale mergers in German banking. Estimating a frontier cost function with a time-variable stochastic efficiency term we show that positive scale and scope effects from a merger arise only if the merged unit closes part of the former branch network. When we compare actual mergers to a simulation of hypothetical mergers, size effects of observed mergers turn out to be slightly more favorable than for all possible mergers. Banks taken over by others are less efficient than the average bank in the same size class, but exhibit on average the same efficiency as the acquiring firms. For the post-merger phase, our empirical results provide no evidence for efficiency gains from merging, but point instead to a leveling off of differences among the merging units.banking, mergers, efficiency, stochastic frontier
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