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Should we Abandon the Intermediation Approach for Analyzing Banking Performance?

  • Mario Fortin

    ()

    (GREDI, Département d'économique, Université de Sherbrooke)

  • Andre Leclerc

    ()

    (Secteur sciences humaines, Université de Moncton, campus d’Edmundston)

The intermediation approach considers banks’ liabilities as inputs to produce loans and other banking assets. We show that measures of banking efficiency and productivity are biased when there is an incomplete coverage of assets and liabilities. The bias can be eliminated with a complete coverage, but in this situation we show that banks are necessarily technically efficient. Moreover, the Malmquist decomposition of productivity growth becomes useless. The difficulties identified in this paper question the usefulness of the intermediation approach in assessing banks’ performance.

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File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-0701.pdf
File Function: First version, 2007
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Paper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number 07-01.

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Length: 21 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:shr:wpaper:07-01
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