Nonparametric Frontier Models for Assessing the Market and Cost Efficiency of Large-Scale Bank Branch Networks

In this paper the author proposes models for assessing the efficiency in large networks of bank branches. He distinguishes bank branch efficiency into market and cost components suitably modified to capture different tiers of bank-management. The paper proposes a methodology which includes the use of multivariate analysis in order to ensure the homogeneity of the branches assessed and then data envelopment analysis for assessing efficiency. The methodology is applied on a sample of 580 branches of a commercial bank in the United Kingdom. The results obtained reinforced previous claims regarding the presence of high technical inefficiencies and economies/diseconomies of scale at the branch level from a production and cost point of view. Furthermore, the decision to precluster the network of branches into homogenous groups has had profound implications on the magnitude of the assessed efficiencies.

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