The Efficiency of Bank Branches
Posted: 15 Sep 1999
Date Written: August 1994
This study measures the efficiency of the branching network of a large U.S. commercial bank over 1989-1991. We find that branches are on average about half of cost-efficient level, so that there are about twice as many branches as would minimize costs. This 'overbranching' raises operating costs by about 14%, which may be partially or fully offset by additional bank-wide revenues from providing extra customer convenience. X-inefficiencies are larger, about 20% to 25% of operating costs. These findings may help explain some efficiency results commonly found in bank-level analysis, and also have implications regarding bank mergers, market values of branches, and management of branching networks.
JEL Classification: G21, G28, L11, L40, L89, C33
Suggested Citation: Suggested Citation