Keywords: Bank, productivity, efficiency, cost, profit
Abstract: We investigate the sources of recent changes in the performance of
U.S. banks using concepts and techniques borrowed from the cross-section
efficiency literature. Our most striking result is that during
1991-1997, cost productivity worsened while profit productivity improved
substantially, particularly for banks engaging in mergers. The data are
consistent with the hypothesis that banks tried to maximize profits by
raising revenues as well as reducing costs, and that banks provided
additional services or higher service quality that raised costs but also
raised revenues by more than the cost increases. The results suggest
that methods that exclude revenues may be misleading.
Full paper (4048 KB PDF)
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Last update: March 19, 1999