US banks efficiency after global financial crisis: Transient and persistent decomposition

Abstract

The Global Financial Crisis creates liquidity shocks, banks failures and a global economic downturn while led to significant supervisory and regulatory reforms affecting banks efficiency performance. We offer new insights investigating overall inefficiency and by decomposing into transient and persistent components. Using a panel data on 5698 US banks during the period 2010–2016, this study incorporates the measure of both transient and persistent production and cost inefficiency. We find that persistent efficiency seems to be more important for both specifications, as it accounts for 32% (for the production) and 39% (for the cost function) of the inefficiency comparing with the transient part. We argue that most of banks faced increasing returns to scale in production and cost, independently from ownership and size dimension.