Banking efficiency in the United States: Issues to consider



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Between the late 1970s and the late 1990s, many countries around the world significantly liberalized important aspects of their financial industries’ regulations. During this period of deregulation, they eliminated interest rate controls, credit controls, and various barriers to the entry of foreign banks, new domestic banks, and non-bank financial institutions. One country to experience significant deregulations in its banking system was the United States. Since the early 1970s, different states have relaxed restrictions on intrastate branching at different times. Deregulation occurred in most states between the mid-1970s and the mid-1990s. The first chapter of this dissertation provides a survey about efficiency analysis. In this chapter, the evolution of the concept of efficiency, methodology, and tools for measuring efficiency are outlined. The second chapter of this dissertation uses the stochastic frontier approach to calculate the efficiency score for all commercial, saving and thrift banks in the United Stated which reported positive value for their total loans and leases between 1993 and 2014 considering a homogeneous regulation environment. The results of the five different efficiency models estimates indicate that there are positive and significant relationships between the selected inputs (the banks’ number of employees, deposits, and capital) and the outputs (loan and leases), as expected. In each model, the banks’ capital had the smallest elasticities and the banks’ deposits had the largest elasticities. The distributions of the efficiencies obtained from the five models are different from each other.
In the third chapter, a multilevel model is used to assess the impact of banking efficiency on labor market outcomes. A multilevel model is used because it allows the effects of banking efficiency on labor market outcomes to be state specific. The results indicate that while states vary regarding their random intercepts and random coefficients for the efficiency score, the effect of efficiency is more pronounced for female employees than for male employees. In contrast, while the number of new establishments shows a positive impact on the employment rates for both males and females, its impact is less pronounced for females.



Banking efficiency, Banking deregulation, Labor market, Stochastic frontier, Multilevel analysis