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Levels of efficiency in UK retail banks: a DEA window analysis

  • Robert Webb
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    This article utilizes DEA window analysis in order to investigate the relative efficiency levels of large UK retail banks during the period of transition 1982-1995. It finds that for the entire sample, the mean inefficiency levels are low in comparison to past studies, that the overall long run average efficiency trend is falling and that all banks in the study show reducing levels of efficiency over the entire time period. It then goes on to disaggregate efficiency into scale and pure technical efficiency and finds that: (1) scale inefficiencies dominate pure technical inefficiencies; (2) less big banks are more likely to report technical inefficiency and (3) during the 1990s banks with asset levels over £105bn suffer decreasing returns to scale

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    Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

    Volume (Year): 10 (2003)
    Issue (Month): 3 ()
    Pages: 305-322

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    Handle: RePEc:taf:ijecbs:v:10:y:2003:i:3:p:305-322
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    1. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of Financial Institutions: International Survey and Directions for Future Research," Center for Financial Institutions Working Papers 97-05, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Golany, B & Roll, Y, 1989. "An application procedure for DEA," Omega, Elsevier, vol. 17(3), pages 237-250.
    3. Piyu Yue, 1992. "Data envelopment analysis and commercial bank performance: a primer with applications to Missouri banks," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-45.
    4. Leigh Drake, 2001. "Efficiency and productivity change in UK banking," Applied Financial Economics, Taylor & Francis Journals, vol. 11(5), pages 557-571.
    5. Rangan, Nanda & Grabowski, Richard & Aly, Hassan Y. & Pasurka, Carl, 1988. "The technical efficiency of US banks," Economics Letters, Elsevier, vol. 28(2), pages 169-175.
    6. Drake, L & Howcroft, B, 1994. "Relative efficiency in the branch network of a UK bank: An empirical study," Omega, Elsevier, vol. 22(1), pages 83-90, January.
    7. Altunbas, Y. & Gardener, E. P. M. & Molyneux, P. & Moore, B., 2001. "Efficiency in European banking," European Economic Review, Elsevier, vol. 45(10), pages 1931-1955, December.
    8. J.K. Ashton, 2001. "Cost Efficiency Characteristics of British Retail Banks," The Service Industries Journal, Taylor & Francis Journals, vol. 21(2), pages 159-174, April.
    9. R J Colwell & E P Davis, 1992. "Output, Productivity and Externalities - the Case of Banking," Bank of England working papers 3, Bank of England.
    10. Ferrier, Gary D. & Lovell, C. A. Knox, 1990. "Measuring cost efficiency in banking : Econometric and linear programming evidence," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 229-245.
    11. Gardener Edward & Howcroft Barry & Williams Jonathan, 1999. "The New Retail Banking Revolution," The Service Industries Journal, Taylor & Francis Journals, vol. 19(2), pages 83-100, April.
    12. Hartman, Thomas E. & Storbeck, James E., 1996. "Input congestion in loan operations," International Journal of Production Economics, Elsevier, vol. 46(1), pages 413-421, December.
    13. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    14. Berger, Allen N. & Hunter, William C. & Timme, Stephen G., 1993. "The efficiency of financial institutions: A review and preview of research past, present and future," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 221-249, April.
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