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Consistency conditions for regulatory analysis of financial institutions: a comparison of frontier efficiency methods

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  • Paul W. Bauer
  • Allen N. Berger
  • Gary D. Ferrier
  • David B. Humphrey

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.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Financial Services working paper with number 97-02.

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Date of creation: 1997
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Handle: RePEc:fip:fedcfs:97-02

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Keywords: Financial institutions ; Bank supervision;

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References

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  4. Allen N. Berger & J. David Cummins & Mary A. Weiss, 1995. "The Coexistence of Multiple Distributions Systems for Financial Services: The Case of Property-Liability Insurance," Center for Financial Institutions Working Papers 95-13, Wharton School Center for Financial Institutions, University of Pennsylvania.
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