I use the stochastic econometric cost frontier approach to investigate efficiency of banks operating in the Third Federal Reserve District, which comprises the eastern two-thirds of Pennsylvania, the southern half of New Jersey, and Delaware. The results indicate that, in general, banks in the district are operating at cost-efficient output levels and production mixes. Thus, there appears to be little potential cost savings from banks’ changing their scale or scope of operations. However, I find a significant level of X-inefficiency at the banks, indicating potential cost savings from more efficient use of inputs. The second part of the article relates the inefficiency measures to several correlates.
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