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

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

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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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-50.

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Date of creation: 1997
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Handle: RePEc:fip:fedgfe:1997-50
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  33. Seiford, Lawrence M. & Thrall, Robert M., 1990. "Recent developments in DEA : The mathematical programming approach to frontier analysis," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 7-38.
  34. Cebenoyan, A Sinan & Cooperman, Elizabeth S & Register, Charles A, 1993. "Firm Efficiency and the Regulatory Closure of S&Ls: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 540-45, August.
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