Abstract
In this study, we focus on how banks can enhance their efficiency in the utilization of resources to ensure their economic sustainability. We propose a novel three-stage (production, investment, and revenue generation) network Data Envelopment Analysis (DEA) with bootstrapping to evaluate the performance of the six big Canadian banks for the period 2000–2017, amid the 2007 financial crisis and the increasing competition level due to new technologies. We identify the best practices in each stage that can be used as benchmarks by other banks to improve their economic sustainability. Our results indicate that the 2007 financial crisis resulted in lower efficiencies in the performance of Canadian banks. This decline was not substantial for the production and investment stages when the revenue generation stage received the greatest hit. In addition, we observed that the individual banks did not have consistent performance in the different stages. Finally, we compared our model with the black box DEA model and concluded that the network DEA provides more insightful and accurate results in terms of banks’ efficiencies.
Highlights
Finanancial services firms are an integral and important part of the economic systems of every country
As the pillar of the modern economy, the banking system has been of interest to many researchers
We proposed a new three-stage network Data Envelopment Analysis (DEA) model with bootstrapping to measure the efficiencies of the banks and identify the best practices in the industry that can be used as benchmarks to achieve economic sustainability
Summary
Finanancial services firms are an integral and important part of the economic systems of every country. They include banks (the largest proportion), securities brokers, insurance, mutual fund, and credit card companies (Melnick et al 2012). The top six banks paid 12.2 billion of CAD$ in taxes in Canada and 18.2 billion of CAD$ overseas (Canadian Bankers Association 2018). In addition to their direct contributions, banks have a more remarkable impact on the GDP through their financing activities. In 2017, more than 1 million of financing relationships between banks and Small and Medium-sized Enterprises (SME) have been reported (Canadian Bankers Association 2018)
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