Evaluating the productive efficiency and performance of US commercial banks

Abstract

Reviews previous research on the efficiency and performance of financial institutions and uses Siems and Barr’s (1998) data envelopment analysis (DEA) model to evaluate the relative productive efficiency of US commercial banks 1984‐1998. Explains the methodology, discusses the input and output measures used and relates bank performance measures to efficiency. Describes the CAMELS rating system used by bank examiners and regulators; and finds that banks with high efficiency scores also have strong CAMELS ratings. Summarizes the other relationship identified and recommends the use of DEA to help analysts and policy makers understand organizations in greater depth, regulators and examiners to develop monitoring tools and banks to benchmark their processes.