Measuring efficiency at U.S. banks: accounting for heterogeneity is important

Estimates of bank cost efficiency can be biased if bank heterogeneity is ignored. The author compares X-inefficiency measures derived from a model that constrains the cost frontier to be the same for all banks in the nation and a model that allows the cost functions and error terms to differ across Federal Reserve Districts. The author finds that the data reject the single cost function model; X-inefficiency measures based on the single cost function model are, on average, higher than those based on the separate cost functions model; the distributions of the one-sided error terms on which X-inefficiency measures are based are wider for the single cost function model than for the separate cost functions models; and the ranking of Districts by the level of X-inefficiency differs in the two models. The differences in efficiency across Districts reflect more than just differences in bank size, geographic size, or population of the Districts. These results suggest that it is important when studying X-inefficiency to account for differences across the markets in which banks are operating and, more generally, that since X-inefficiency is, by construction, a residual, it will be particularly sensitive to omissions in the basic model.Banks and banking - Costs

Managing the recovery in uncertain times: a summary of the 2003 Philadelphia Fed Policy Forum.

Managing the recovery in uncertain times was the topic of our third annual Philadelphia Fed Policy Forum held on November 14, 2003. This event, sponsored by the Bank’s Research Department, brought together a group of highly respected academics, policymakers, and market economists, for discussion and debate about the effect of uncertainty on economic decision-making. Our hope is that the 2003 Policy Forum serves as a catalyst for both greater understanding and more research on policymaking in the face of uncertainty.Uncertainty ; Economic policy ; Monetary policy

Innovation and regulation in financial markets: A summary of the 2007 Philadelphia Fed Policy Forum

Innovation and Regulation in Financial Markets” was the topic of the seventh annual Philadelphia Fed Policy Forum, held on November 30, 2007. This event, sponsored by the Bank’s Research Department, brought together economic scholars, policymakers, and market economists to discuss and debate the consequences of financial innovation and the implications for financial market regulation. The recent events in financial markets and their effects on the real sector of the economy underscore the importance of greater understanding and further research on these topics.Financial markets

Banking industry's consolidation: what's a small business to do?

Relaxation of the rules governing where banks can expand and new technologies for providing banking services have contributed to rapid consolidation in the industry. In addition, the number of commercial banks in the United States has been shrinking, and banks have been getting larger. Should we be worried that consolidation will lead to a contraction of credit to small businesses? Read what Loretta Mester has to say on the subject in this articleBank mergers ; Small business

Economic growth and development: perspectives for policy makers

Loretta Mester summarizes the discussion at the 2006 Philadelphia Fed Policy ForumEconomic development

Some thoughts on the evolution of the banking system and the process of financial intermediation

The author discusses three areas she considers important in the evolution of the financial services industry: consolidation and the economies gained from it, governance issues that emerge as the structure of the banking industry changes, and the decline in the market share of banking. This decline in market share, she believes, may reflect a decline in demand for deposits rather than a decline in demand for relationship lending.Banks and banking ; Bank supervision

Changes in the use of electronic means of payment: 1995-2004

In “Changes in the Use of Electronic Means of Payment: 1995-2004,” Loretta Mester has compiled information from the recently released 2004 Survey of Consumer Finances. She updates statistics indicating how the usages of various means of electronic payment have changed between 1995 and 2004. ; Also issued as Payment Cards Center Discussion Paper No. 06-06Electronic commerce

Changes in the use of electronic means of payment: 1995-2001

In "Changes in the Use of Electronic Means of Payment: 1995-2001," Mester updates tables that first appeared in her article in the March/April 2000 Business Review. The tables are based on data from the 2001 Survey of Consumer Finances. ; Also issued as Payment Cards Center Discussion Paper No. 03-16Payment systems

Challenges and opportunities in a global economy: perspectives on outsourcing, exchange rates, and free trade: a summary of the 2004 Philadelphia Fed Policy Forum

Globalization ; Foreign exchange rates ; Free trade ; Contracting out

Crises, contagion, and coordination: a summary of the 2002 Philadelphia Fed Policy Forum

In our next article, "Crises, Contagion, and Coordination," Loretta Mester summarizes last year's Policy Forum. On pages 16-17, you'll find information about this year's Forum: "Managing the Recovery in Uncertain Times." In "Changes in the Use of Electronic Means of Payment: 1995-2001," Mester updates tables that first appeared in her article in the March/April 2000 Business Review. The tables are based on data from the 2001 Survey of Consumer Finances.