The comparative efficiency performance of small and large US commercial banks in the pre- and post-deregulation eras

Abstract

The purposes of this paper are twofold: first, to employ a flexible non-parametric approach to contrast the productive efficiency of a sample of small and large banks in order to examine the relationship between size and productive performance in the banking industry. Second, to investigate whether the relative efficiency performance of small and large banks has changed following the changes in the banking environment in the 1980s and to contrast the rate of technological change achieved by these two groups of banks over this time period. The findings based on group-specific frontiers suggest that in the pre-deregulation environment small banks were more efficient than the large banks while in the deregulated environment small and large banks were equally efficient. Moreover, the dispersion in the efficiency measures of the small banks is found to have increased substantially while that of the large banks changed little over the sample period.