Non-Parametric Frontier Models for Assessing the Market and Cost Efficiency of Large Scale Bank Branch Networks
Journal of Money, Credit, and Banking, Vol. 30 No. 2, May 1998
Posted: 17 Feb 1998
In this paper we propose models for assessing the efficiency inlarge networks of bank branches. We distinguish bank branch efficiency into market and cost components suitably modified to capture different tiers of bank-management. The paper proposes a methodology which includes the use of multivariate analysis in order to ensure the homogeneity of the branches assessed and then data envelopment analysis for assessing efficiency. The methodology is applied on a sample of 580 branches of a commercial bank in the UK. The results obtained reinforced previous claims regarding the presence of high technical inefficiencies and economics/diseconomies of scale at the branch level from a production and cost point of view. Furthermore, the decision to pre-cluster the network of branches into homogenous groups has had profound implications on the magnitude of the assessed efficiencies.
JEL Classification: G21
Suggested Citation: Suggested Citation