Assessing Bank and Bank Branch Performance

Modeling Considerations and Approaches
  • Joseph C. Paradi
  • Sandra Vela
  • Zijiang Yang
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 71)


The Banking industry has been the object of DEA analyses by a significant number of researchers and probably is the most heavily studied of all business sectors. The Financial Services Industry is a great subject because both the need by management is there (due to competition) and the data is available in great detail affording the analyst much scope for study. Moreover, there are interestign challenges presented because there are many influences on this industry that must be accounted for in the models. Many new theoretical innovations in DEA were spawned by the need that arose because of the unusual situation at hand.

Key words

Banking performance DEA models Performance Efficiency 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Aggarwall, V., 1996, Performance Analysis of Large Canadian Banks over Time using DEA”, MASc Dissertation, Centre for Management of Technology and Entrepreneurship.Google Scholar
  2. 2.
    Akhavein, J.D., Berger, A.N., and Humphrey, D.B., 1997, The Effects of Megamergers on Efficiency and Prices: Evidence from A Bank Profit Function, Review of Industrial Organizations 12, 95–139.CrossRefGoogle Scholar
  3. 3.
    Al-Faraj, T.N., Alidi, A.S., and Bu-Bshait, K.A., 1993, Evaluation of Bank Branches By Means of Data Envelopment Analysis, International Journal of Operations and Production Management 13,No. 9, 45–53.CrossRefGoogle Scholar
  4. 4.
    Athanassopoulos, A.D., 1997, Service Quality and Operating Efficiency Synergies for Management in The Provision of Financial Services: Evidence from Greek Bank Branches, European Journal of Operational Research 98, 300–313.MATHCrossRefGoogle Scholar
  5. 5.
    Athanassopoulos, A.D., 1998, Non-Parametric Frontier Models for Assessing the Market and Cost Efficiency of Large-Scale Bank Branch Networks, Journal of Money, Credit, and Banking 30,No. 2, 172–192.CrossRefGoogle Scholar
  6. 6.
    Athanassopoulos, A.D., 2000, An Optimization Framework of the Triad: Service Capabilities, Customer Satisfaction and Performance, In: P.T. Harker, and SA. Zenios (Eds.), Performance of Financial Institutions, Cambridge University Press,Cambridge, England, 312–335.Google Scholar
  7. 7.
    Athanassopoulos, A.D., and Giokas, D., 2000, The Use of Data Envelopment Analysis in Banking Institutions: Evidence from the Commercial Bank of Greece, Interfaces 30,No. 2, 81–95.CrossRefGoogle Scholar
  8. 8.
    Avkiran, N.K., 1999, The Evidence on Efficiency Gains: The Role of Mergers and the Benefits to the Public, Journal of Banking and Finance 23, 991–1013.CrossRefGoogle Scholar
  9. 9.
    Banker, R.D., and Morey, R., 1986, The Use of Categorical Variables in Data Envelopment Analysis, Management Science, 32(12), 1613–1627.CrossRefGoogle Scholar
  10. 10.
    Bauer, P.W., 1990, Recent Developments in the Econometric Estimation of Frontiers, Journal of Econometrics 46, 39–56.CrossRefGoogle Scholar
  11. 11.
    Berg, S.A., Førsund, F.R. and Jansen, E.S., 1992, Malmquist Indices of Productivity Growth During the Deregulation of Norwegian Banking, 1980-89, Scandinavian Journal of Economics, vol. 94 (Supplement)Google Scholar
  12. 12.
    Berger, A.N., and DeYoung, R., 1996, Problem Loans and Cost Efficiency in Commercial Banks, Working Paper, 96-01, Wharton Financial Institutions Paper.Google Scholar
  13. 13.
    Berger, A.N, Hancock, D. and Humphrey, D.B., 1993, Bank Efficiency Derived from the Profit Function, Journal of Banking and Finance 17,No. 2/3, 317–348.CrossRefGoogle Scholar
  14. 14.
    Berger, A.N., Hunter, W.C., and Timme, S.G., 1993, The Efficiency of Financial Institutions: A Review and Preview of Research Past, Present, And Future, Journal of Banking and Finance 17, 221–249.CrossRefGoogle Scholar
  15. 15.
    Berger, A.N., and Humphrey, D.B., 1990, Measurement and Efficiency Issues in Commercial Banking, Finance and Economic Discussion Series, Working Paper #151, Board of Governors of the Federal Reserve System.Google Scholar
  16. 16.
    Berger, A.N. and Humphrey, D.B., 1991, The Dominance of Inefficiencies over Scale and Product Mix Economies in Banking, Journal of Monetary Economics 28,No. 1, 117–148.CrossRefGoogle Scholar
  17. 17.
    Berger, A.N. and Humphrey, D.B., 1997, Efficiency of Financial Institutions: International Survey and Directions For Future Research, European Journal of Operational Research 98, 175–212.CrossRefGoogle Scholar
  18. 18.
    Berger, A.N., 1998, The Efficiency Effects of Bank Mergers and Acquisitions: A Preliminary Look at The 1990s Data, In: Amihud, Y., And Miller, G. (Eds.), Bank Mergers and Acquisitions, Kluwer Academic Publishers, Dordrecht, 79–111.Google Scholar
  19. 19.
    Bhattacharyya, A., Lovell, C.A.K., and Sahay, P., 1997, The Impact of Liberalization on the Productive Efficiency of Indian Commercial Banks, European Journal of Operations Research 98, 333–346CrossRefGoogle Scholar
  20. 20.
    Bukh, P.N.D., Berg, S.A., and Førsund, F.R., 1995, Banking Efficiency in the Nordic Countries: A Four-country Malmquist Index Analysis, Working paper, University of Aarhus, DenmarkGoogle Scholar
  21. 21.
    Camanho, A.S. and Dyson, R.G., 1999, Efficiency, Size, Benchmarks and Targets for Bank Branches: an Application of Data Envelopment Analysis, Journal of The Operational Research Society 50, 903–915.Google Scholar
  22. 22.
    Caves, D. W., Christensen, L. R. and Diewert, W. E., 1982, The Economic Theory of Index Numbers and the Measurement of Input, Output and Productivity, Econometrica, 50, 1393–1414.CrossRefGoogle Scholar
  23. 23.
    Chang, K.P., 1999, “Measuring Efficiency with Quasiconcave Production Frontiers”, European Journal of Operational Research, 115(3), 497–506.ADSMATHCrossRefGoogle Scholar
  24. 24.
    Charnes, A., W.W. Cooper, A.Y. Lewin and L.M. Seiford (eds.), 1994, Data Envelopment Analysis: Theory, Methodology and Applications. Kluwer Academic Publishers.Google Scholar
  25. 25.
    Clark, J.A., 1996, Economic Cost, Scale Efficiency, and Competitive Viability in Banking, Journal of Money, Banking and Credit 28,No. 3, 342–364.CrossRefGoogle Scholar
  26. 26.
    Coelli, T., Rao, D.SP. and Battese, G. E. 1998 An Introduction to Efficiency and Productivity Analysis, Kluwer Academic Publishers, Boston.Google Scholar
  27. 27.
    Colwell, R.J., Davis, E.P., 1992, Output and Productivity in Banking, Scandinavian Journal of Economics.Google Scholar
  28. 28.
    Cook, W.D., Hababou, M. and Tuenter, H.J., 2000, Multicomponent Efficiency Measurement and Shared Inputs in Data Envelopment Analysis: an Application to Sales and Service Performance in Bank Branches, Journal of Productivity Analysis 14, 209–224.CrossRefGoogle Scholar
  29. 29.
    Cooper, W.W., Seiford, L.M. and Tone, K. (eds.), 2000, Data Envelopment Analysis: A Comprehensive Text with Models, Applications, References, and DEA-Solver Software, Kluwer Academic Publishers, Boston.Google Scholar
  30. 30.
    DeYoung, R., 1993, Determinants of Cost Efficiencies in Bank Mergers, Economic and Policy Analysis, Working Paper 93-01, Washington: Office ofthe Comptroller of the Currency.Google Scholar
  31. 31.
    DeYoung, R., 1997, A Diagnostic Test for the Distribution-Free Efficiency Estimator: An Example Using U.S. Commercial Bank Data, European Journal of Operational Research 98,No. 2, 243–249.MATHGoogle Scholar
  32. 32.
    DeYoung, R., 1998, Management Quality and X-Inefficiency in National Banks, Journal of Financial Services Research 13,No. 1,5–22.CrossRefGoogle Scholar
  33. 33.
    Drake, L. and Howcroft, B., 1994, Relative Efficiency in The Branch Network of a UK Bank: An Empirical Study, Omega 22,No. 1, 83–91.CrossRefGoogle Scholar
  34. 34.
    Favero, C., and Papi, L., 1995, Technical Efficiency and Scale Efficiency in the Italian Banking Sector: a Non-Parametric Approach, Applied Economics, 27, 385–395CrossRefGoogle Scholar
  35. 35.
    Färe, R., Grosskopf, S., Norris, M. and Zhang, Z., 1994, Productivity Growth, Technical Progress, and Efficiency Changes in Industrialized Countries, American Economic Review, 84, 66–83.Google Scholar
  36. 36.
    Fixler, D.J. and Zieschang, K.D., 1993, An Index Number Approach to Measuring Bank Efficiency: An Application to Mergers, Journal of Banking and Finance 17,437–450.CrossRefGoogle Scholar
  37. 37.
    Fixler, D., and Zieschang, K., 1999, The Productivity ofthe Banking Sector: Integrating Financial and Production Approaches to Measuring Financial Service Output, Canadian Journal of Economics, 32,No. 2.Google Scholar
  38. 38.
    Fukuyama, H., 1993, Technical and Scale Efficiency of Japanese Commercial Banks: A Non-Parametric Approach, Applied Economics 25, 1101–1112CrossRefGoogle Scholar
  39. 39.
    Giokas, D., 1991, Bank Branch Operating Efficiency: A Comparative Application ofDEA and the Log-Linear Model, Omega 19,No. 6, 549–557.CrossRefGoogle Scholar
  40. 40.
    Golany, B. and Storbeck, J.E., 1999, A Data Envelopment Analysis of the Operation Efficiency of Bank Branches, Interfaces 29,No. 3, 14–26.CrossRefGoogle Scholar
  41. 41.
    Grabowski, R., Mathur, I. and Rangan, N., 1995, The Role of Takeovers in Increasing Efficiency, Managerial and Decision Economics 16,No. 3, 211–224.CrossRefGoogle Scholar
  42. 42.
    Haag, S.E. and Jaska, P.V., 1995, Interpreting Inefficiency Ratings: An Application of Bank Branch Operating Efficiencies, Managerial and Decision Economics 16,No. 1, 7–15.CrossRefGoogle Scholar
  43. 43.
    Hao, J., Hunter, W.C. and Yang, W.K., 2001, Deregulation and Efficiency: The Case of Private Korean Banks, Journal of Economics and Business 53,No. 2/3, 237–254.CrossRefGoogle Scholar
  44. 44.
    Haynes, M. and Thompson, S., 1999, The Productivity Effects of Bank Mergers: Evidence from the UK Building Societies, Journal of Banking and Finance 23, 825–846.CrossRefGoogle Scholar
  45. 45.
    Kantor, J. and Maital, S., 1999, Measuring Efficiency by Product Group: Integrating DEA with Activity-Based Accounting in A Large Mideast Bank, Interfaces 29,No. 3, 27–36.CrossRefGoogle Scholar
  46. 46.
    Kaparakis, E.I., Miller, S.M. and Noulas, A.G., 1994, Short-Run Cost Inefficiency of Commercial Banks: A Flexible Stochastic Frontier Approach, Journal of Money, Credit And Banking 26,No. 4, 875–894.CrossRefGoogle Scholar
  47. 47.
    Kinsella, R.P., 1980, The Measurement of Bank Output, Journal of the Institute of Bankers in Ireland, 82, pp. 173–183.Google Scholar
  48. 48.
    Lovell, C.A.K. and Pastor, J.T., 1997, Target Setting: An Application to a Bank Branch Network, European Journal of Operational Research 98, 290–299.CrossRefGoogle Scholar
  49. 49.
    Malmquist, S. 1953, Index Numbers and Indifference Surfaces, Trabajos de Estatistica, 4, 209–42.MATHMathSciNetCrossRefGoogle Scholar
  50. 50.
    Nash, D. and Sterna-Karwat, A., 1996, An Application of DEA To Measure Branch Cross Selling Efficiency, Computers Operations Research 23,No. 4, 385–392.CrossRefGoogle Scholar
  51. 51.
    Oral, M., Kettani, O. and Yolalan, R., 1992, An Empirical Study on Analyzing the Productivity of Bank Branches, IIE Transactions 24 No 5.Google Scholar
  52. 52.
    Oral, M. and Yolalan, R., 1990, An Empirical Study on Measuring Operating Efficiency and Profitability of Bank Branches, European Journal of Operational Research 46, 282–294.CrossRefGoogle Scholar
  53. 53.
    Paradi, J. C. and Schaffnit, C., 2003, Commercial Branch Performance Evaluation and Results Communication in a Canadian Bank — a DEA Application. Accepted for publication in the European Journal of Operational Research.Google Scholar
  54. 54.
    Parkan, C., 1987, Measuring The Efficiency of Service Operations: An Application to Bank Branches, Engineering Costs and Production Economics 12, 237–242.CrossRefGoogle Scholar
  55. 55.
    Pastor, J., Perez, F., and Quesada, J. 1997, Efficiency Analysis in Banking Firms: An International Comparison, European Journal of Operations Research 98, 396–408CrossRefGoogle Scholar
  56. 56.
    Peristiani, S., 1993, Evaluating The Postmerger X-Efficiency And Scale Efficiency of U.S. Banks, Federal Reserve Bank Of New York.Google Scholar
  57. 57.
    Peristiani, S., 1997, Do Mergers Improve the X-Efficiency and Scale Efficiency of U.S. Banks? Evidence from the 1980s, Journal of Money, Credit and Banking 29,No. 3, 326–337.CrossRefGoogle Scholar
  58. 58.
    Resti, A., 1998, Regulation Can Foster Mergers, Can Mergers Foster Efficiency? The Italian Case, Journal of Economics and Business 50, 157–169.Google Scholar
  59. 59.
    Rouatt, S., 2003, Two Stage Evaluation of Bank Branch Efficiency Using Data Envelopment Analysis, MASc Dissertation, Centre for Management of Technology and Entrepreneurship.Google Scholar
  60. 60.
    Schaffnit, C, Rosen, D. and Paradi, J.C., 1997, Best Practice Analysis of Bank Branches: An Application of DEA in a Large Canadian Bank, European Journal of Operational Research 98,No. 2, 269–289.CrossRefGoogle Scholar
  61. 61.
    Sherman, H.D. and Ladino, G., 1995, Managing Bank Productivity Using Data Envelopment Analysis (DEA), Interfaces 25,No. 2, 60–73.CrossRefGoogle Scholar
  62. 62.
    Sherman, H.D. and Gold, F., 1985, Bank Branch Operating Efficiency: Evaluation with Data Envelopment Analysis, Journal of Banking and Finance 9,No. 2, 297–316.CrossRefGoogle Scholar
  63. 63.
    Smith, P., 1990, Data Envelopment Analysis Applied to Financial Statements, OMEGA International Journal of Management Science, 18(2), pp. 131–138.CrossRefGoogle Scholar
  64. 64.
    Soteriou, A.C. and Stavrinides, Y., 1997, An Internal Customer Service Quality Data Envelopment Analysis Model for Bank Branches, International Journal of Operations and Production Management 17,No. 8, 780–789.CrossRefGoogle Scholar
  65. 65.
    Soteriou, A., and Zenios, S.A., 1999, Operations, Quality, and Profitability in the Provision of Banking Services, Management Science 45,No. 9, 1221–1238.CrossRefGoogle Scholar
  66. 66.
    Sowlati, T. and Paradi, J. C. 2003, Establishing the “Practical Frontier” in Data Envelopment Analysis, Working Paper.Google Scholar
  67. 67.
    Thompson, R. G., Brinkmann, E. J., Dharmapala, P. S, Gonzales-Lima. M. D., and Thrall, R. M., 1997, DEA/AR Profit Ratios and Sensitivity of 100 Large U. S. Banks, European Journal of Operations Research 98, 213–229CrossRefGoogle Scholar
  68. 68.
    Tulkens, H., 1993, On FDH Efficiency Analysis: Some Methodological Issues and Applications to Retail Banking, Courts and Urban Transit, Journal of Productivity Analysis 4,No. 1/2, 183–210.CrossRefGoogle Scholar
  69. 69.
    Vance, H., 2000, Opportunity Index Development for Bank Branch Networks, MASc Dissertation, Centre for Management of Technology and Entrepreneurship.Google Scholar
  70. 70.
    Vander Vennet, R., 1996, The Effect of Mergers and Acquisitions on the Efficiency and Profitability ofEC Credit Institutions, Journal of Banking and Finance 20, 1531–1558.CrossRefGoogle Scholar
  71. 71.
    Vassiloglou, M. and Giokas, D., 1990, A Study of The Relative Efficiency of Bank Branches: An Application of Data Envelopment Analysis, Journal of The Operational Research Society 41,No. 7, 591–597.Google Scholar
  72. 72.
    Vela, S. and Paradi, J. C., 2002, Measuring the Effects of Cultural Differences in Bank Branch Performance Utilizing DEA, Working paper, Centre for Management of Technology and Entrepreneurship.Google Scholar
  73. 73.
    Yang, Z. and Paradi, J. C., 2003, Evaluating Competitive Banking Units Using “Handicapped” Data Envelopment Analysis to Adjust for Systemic Differences. Working Paper.Google Scholar
  74. 74.
    Yue, P., 1992, Data Envelopment Analysis and Commercial Bank Performance: A Primer with Applications to Missouri Banks, Federal Reserve Bank of St. Louis Review, Vol. 74-1.Google Scholar
  75. 75.
    Zenios, C.V., Zenios, S.A., Agathocleous, K. and Soteriou, A.C., 1999, Benchmarks of the Efficiency of Bank Branches, Interfaces 29,No. 3, 37–51.CrossRefGoogle Scholar

Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Joseph C. Paradi
    • 1
  • Sandra Vela
    • 2
  • Zijiang Yang
    • 3
  1. 1.Centre for Management of Technology and EntrepreneurshipUniversity of TorontoorontoCanada
  2. 2.TD Canada TrustTorontoCanada
  3. 3.Department of Mathematics and StatisticsYork UniversityTorontoCanada

Personalised recommendations