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Inside the Black Box: What Makes a Bank Efficient?

Author

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  • Frances X. Frei
  • Patrick T. Harker
  • Larry W. Hunter

Abstract

A decade of econometric research has shown that X-efficiency dominates scale and scope as the drivers of inefficiency in the U.S. banking industry. However, this research falls short in explaining the causes of the high degree of X-efficiency in the industry. This paper summarizes a four-year research effort to understand the drivers of this inefficiency. Key findings from this research, based on the most comprehensive studies to date of management practices in the retail banking industry, give insight into the drivers of X-efficiency. The paper provides a comprehensive framework for the analysis of X-efficiency in financial services. This paper was presented at the Wharton Financial Institutions Center's conference on

Suggested Citation

  • Frances X. Frei & Patrick T. Harker & Larry W. Hunter, 1998. "Inside the Black Box: What Makes a Bank Efficient?," Center for Financial Institutions Working Papers 97-20, Wharton School Center for Financial Institutions, University of Pennsylvania.
    • Handle: RePEc:wop:pennin:97-20
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    File URL: http://fic.wharton.upenn.edu/fic/papers/97/9720.pdf
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    Cited by:

    1. Andreas Soteriou & Stavros A. Zenios, 1999. "Operations, Quality, and Profitability in the Provision of Banking Services," Management Science, INFORMS, vol. 45(9), pages 1221-1238, September.

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