Three papers on economic efficiency in the United States commercial banking industry

The first paper compares two kinds of cost systems, the translog and the CES-translog, in terms of overall scale economy (OSE) and four different substitution & price elasticities. For this study I construct the annual cross-sectional commercial banking data covering 1987–2000 and employ the full information maximum likelihood estimation method. The empirical results indicate that the translog cost system is better than the CES-translog cost system in many years, but the OSE & elasticity values calculated from two different cost systems show the robust results. The above indication can support the claim of Gong & Sickles (1989) that the CES-translog cost function is often better than the translog cost function.; The second paper first employs the stochastic frontier CES-translog cost function to estimate global scale economies, overall cost efficiencies (OCE), and Battese & Coelli cost efficiencies (BCCE) for the U.S. commercial banking industry. For this study I use the annual cross-sectional commercial banking data (1991, 1995, and 2000) and classify nine bank groups based on total asset sizes. The OCE (BCCE) values show declining patterns for this banking industry based on 0.8996 (0.9018), 0.8759 (0.8791), and 0.8582 (0.8618) in the respective years, 1991, 1995, and 2000. The majority of all banks are operating at the efficiency level of 80% or more.; The third paper assesses the performance of the U.S. commercial banking industry measured by total factor productivity (TFP) growth during the period 1987–1999. This study first investigates TFP growth and its three decompositions (changes in cost inefficiencies, technical change, and scale effects) and employs the stochastic frontier translog cost function with a cost inefficiency effects model. For this study I construct a panel of 5119 commercial banks that have continuously existed from 1987 to 1999 and classify three different bank sizes. The annual growth rates of TFP for all commercial banks were −0.05%. Since changes in cost inefficiencies dominated the other two decompositions, technical change and scale effect, the TFP growth moves together with the changes in cost inefficiencies. From the index of the TFP growth, there was a 2% overall decline in TFP growth.