The Use of DEA to Assess the Financial Efficiency of Large Banks

Global Business and Finance Review, Vol. 1, No. 1, pp. 1-12, Spring 1996

Robert H. Smith School Research Paper No. RHS 2597280

15 Pages Posted: 22 Apr 2015 Last revised: 18 Aug 2015

See all articles by John A. Haslem

John A. Haslem

University of Maryland - Robert H. Smith School of Business; University of Maryland - Robert H. Smith School of Business

Carl A. Scheraga

Fairfield University - Charles F. Dolan School of Business

James Bedingfield

University of Maryland - Robert H. Smith School of Business

Date Written: May 15, 2015

Abstract

Data Envelopment Analysis (DEA) was used to analyze the input/output efficiency of large U.S. banks in 1987 and 1992. The former was the year that banks belatedly began to acknowledge financially the increasingly severe problems from loans to less-developed countries, especially in Latin America. In 1987 it was found that the DEA-efficient ("best practices") banks were in fact financial "bad practice" banks. It appears something akin to a herd instinct led banks to make excessive loans to LDC, especially in Latin America. These foreign loans became so pervasive that DEA identified them as a positive, necessary focus in bank efficiency. As a result, DEA "inefficient banks" were identified as deficient in foreign loan outputs. However, their foreign activities were actually more profitable (less unprofitable) than DEA identified "efficient banks." Further, "inefficient banks" were more profitable than "efficient banks" in all measures, overall, foreign and domestic. . By 1992, the LDC loan crisis had passed and DEA identified "best practice" banks were also financial "good practice" banks. Banks appeared to be more rational and normal than in 1987. DEA-identified "efficient banks" were then more profitable in all measures (overall, foreign, and domestic) than "inefficient banks" And, "inefficient banks" were identified as deficient in foreign loan outputs, but in this case their foreign activities were profitable.

Suggested Citation

Haslem, John A. and Haslem, John A. and Scheraga, Carl A. and Bedingfield, James, The Use of DEA to Assess the Financial Efficiency of Large Banks (May 15, 2015). Global Business and Finance Review, Vol. 1, No. 1, pp. 1-12, Spring 1996, Robert H. Smith School Research Paper No. RHS 2597280, Available at SSRN: https://ssrn.com/abstract=2597280

John A. Haslem (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742
United States
202-387 2025 (Phone)

University of Maryland - Robert H. Smith School of Business ( email )

5901 MacArthur Blvd NW 124
Washington, DC DC 20016
United States
202-236 3172 (Phone)

Carl A. Scheraga

Fairfield University - Charles F. Dolan School of Business ( email )

N. Benson Road
Fairfield, CT 06824
United States

James Bedingfield

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
76
Abstract Views
759
Rank
567,594
PlumX Metrics