The Efficiency of Bank Branches

Posted: 15 Sep 1999

See all articles by Allen N. Berger

Allen N. Berger

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

John Leusner

University of Chicago

John J. Mingo

Mingo & Co.

Date Written: August 1994

Abstract

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

Berger, Allen N. and Leusner, John and Mingo, John J., The Efficiency of Bank Branches (August 1994 ). Available at SSRN: https://ssrn.com/abstract=5955

Allen N. Berger (Contact Author)

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

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

John Leusner

University of Chicago

1101 East 58th Street
Chicago, IL 60637
United States

John J. Mingo

Mingo & Co. ( email )

P.O. Box 764
Livingston, MT 59047-0764
United States
406-222-0907 (Phone)
406-222-8093 (Fax)

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