Consistency Conditions for Regulatory Analysis of Financial Institutions: A Comparison of Frontier Efficiency Methods

43 Pages Posted: 27 Nov 1998

See all articles by Paul W. Bauer

Paul W. Bauer

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Gary D. Ferrier

University of Arkansas - Sam M. Walton College of Business

David B. Humphrey

Florida State University - Department of Finance

Multiple version iconThere are 2 versions of this paper

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.

JEL Classification: G21, G28, E58

Suggested Citation

Bauer, Paul W. and Berger, Allen N. and Ferrier, Gary D. and Humphrey, David B., Consistency Conditions for Regulatory Analysis of Financial Institutions: A Comparison of Frontier Efficiency Methods. Available at SSRN: https://ssrn.com/abstract=137992 or http://dx.doi.org/10.2139/ssrn.137992

Paul W. Bauer (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States
216-579-3021 (Phone)

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
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Wharton Financial Institutions Center

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European Banking Center

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Gary D. Ferrier

University of Arkansas - Sam M. Walton College of Business ( email )

BA418, Dept. of Economics
Fayetteville, AR 72701
United States
501-575-6223 (Phone)

David B. Humphrey

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States
850-644-7899 (Phone)
850-668-6696 (Fax)

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