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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Consistency Conditions for Regulatory Analysis of Financial Institutions: A Comparison of Frontier Efficiency Methods
Paul W. Bauer, Allen N. Berger, Gary D. Ferrier, and David B. Humphrey

Abstract: We propose a set of consistency conditions that frontier efficiency measures should meet to be most useful for regulatory analysis or other purposes. The efficiency estimates should be consistent in their efficiency levels, rankings, and identification of best and worst firms; consistent over time and with competitive conditions in the market; and consistent with standard nonfrontier measures of performance. We provide evidence on these conditions by evaluating and comparing efficiency estimates on U.S. bank efficiency from variants of all four of the major approaches--DEA, SFA, TFA, and DFA--and find mixed results.

Keywords: Bank, financial institution, efficiency, regulation, profit, cost

Full paper (2580 KB PDF)

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Last update: January 27, 1998