Rez anian, Rasoul; Mehdian, Seyed; Teclezion, Mussie
A icle
The cos e iciency o he U.S. small banks a e he 2008
global inancial c isis
Cogen Economics & Finance
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The cos efficiency o he U.S. small banks a e
he 2008 global financial c isis
Rasoul Rez anian, Seyed Mehdian & Mussie Teclezion
To ci e his a icle: Rasoul Rez anian, Seyed Mehdian & Mussie Teclezion (2024) The cos
efficiency o he U.S. small banks a e he 2008 global financial c isis, Cogen Economics &
Finance, 12:1, 2402558, DOI: 10.1080/23322039.2024.2402558
To link o his a icle: h ps://doi.o g/10.1080/23322039.2024.2402558
© 2024 The Au ho (s). Published by In o ma
UK Limi ed, ading as Taylo & F ancis
G oup
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GENERAL & APPLIED ECONOMICS | RESEARCH ARTICLE
The cos e iciency o he U.S. small banks a e he 2008 global
inancial c isis
Rasoul Rez anian
a
, Seyed Mehdian
b
and Mussie Teclezion
a
a
Co in School o Business, Uni e si y o Wisconsin, G een Bay, WI, USA;
b
School o Managemen , Uni e si y o Michigan -
Flin , Flin , MI, USA
ABSTRACT
This pape examines he ela i e cos e iciency o U.S. small banks a e he 2008
Global Financial C isis (2008 GFC). Using inancial in o ma ion om 10,495 o he same
small banks ope a ing om 2010 o 2021, we examine he a e -e ec s o he ecen
global inancial c ises on he U.S. small banks. The s udy uses Da a En elopmen
Analysis (DEA) o calcula e he o e all e iciency using yea ly and pooled da a. The
o e all e iciency measu e is hen decomposed in o alloca i e, echnical, pu e- ech-
nical, and scale e iciency o be e unde s and he sou ces o small banks’ine icien-
cies. The esul s indica e ha he o e all e iciency o small banks ope a ing in he
U.S. a e he 2008 GFC has been con inuously low un il 2021. The sou ce o he low
le el o o e all e iciency has been he low le el o echnical e iciency a he han
alloca i e e iciency. In u n, he basis o he low le el o echnical e iciency has been
pu e echnical and scale e iciency. Unde s anding he o igins o cos ine iciencies in
small banks has implica ions o mic o and mac o policymaking. Examining he unde -
lying causes o cos ine iciencies in small banks a e he inancial c isis can in o m
policymake s in de ising s a egies o imp o e banks’cos e iciency.
IMPACT STATEMENT
This pape del es in o he impac o he 2008 global inancial c isis on he e iciency o
small banks in he U.S. using Da a En elopmen Analysis (DEA). Unde s anding he ea-
sons o cos ine iciencies in small banks has implica ions o bo h mic o and mac o
policy-making. By in es iga ing he oo causes o cos ine iciencies in small banks ol-
lowing he 2008 inancial c isis, policymake s can de elop s a egies o imp o e small
banks’cos e iciency.
ARTICLE HISTORY
Recei ed 28 Sep embe 2023
Re ised 25 July 2024
Accep ed 3 Sep embe 2024
KEYWORDS
U.S. small banks; e iciency;
inancial c isis
JEL CLASSIFICATION
G21; G29; C61
SUBJECTS
Economics; Finance;
Business, Managemen and
Accoun ing
1. In oduc ion
The inancial sys em o any de eloped coun y is a co ne s one o i s economic g ow h. Among he key
playe s in his sys em, deposi o y inancial ins i u ions, pa icula ly comme cial banking o ganiza ions,
s and ou due o hei size and numbe . These banks se e as inancial in e media ies, con e ing depos-
i s in o p oduc i e in es men s ha uel economic de elopmen . Gi en hei pi o al ole in mac oeco-
nomics, i ’s impe a i e o policymake s o sa egua d he s abili y and heal h o he banking sys em.
Despi e conce ed e o s o bols e i s sa e y, he banking indus y has wea he ed se e al c ises in
ecen decades, including he 1997 Sou heas Asia Financial C isis and he 2008 Global Financial C isis
(2008 GFC). The inc easing in e connec edness o inancial ma ke s and he e olu ion o in e na ional
paymen sys ems ha e made any inancial c isis a global h ea . While all inancial c ises ake a oll, he
2008 GFC is widely ega ded as he mos des uc i e, pa icula ly o he global banking sys em.
The 2008 GFC o igina ed in he Uni ed S a es in 2007, swi ly sp eading wo ldwide and endu ing o
o e wo yea s. Some analys s a ibu e he c isis o inc eased household bo owing, pa icula ly o home
pu chases. I had a a - eaching impac on all sec o s o he economy, especially he banking sec o , which
CONTACT Seyed Mehdian [email p o ec ed] Co in School o Business, Uni e si y o Wisconsin, G een Bay, Wisconsin, USA.
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2402558
h ps://doi.o g/10.1080/23322039.2024.2402558
had signi ican ly heigh ened bo owing and loaded hei asse po olios wi h isky loans based on sub-
p ime lending. The bank managemen jus i ied he inc eased bo owing by ci ing co po a e inance heo y,
aiming o magni y he e u n on equi y and bene i om ax ad an ages. Howe e , a combina ion o alling
eal es a e p ices, highly le e aged balance shee s, and egula o y o e sigh s laid he g oundwo k o he
a i al o he 2008 GFC. The inancial allou signi ican ly in luenced he beha io o comme cial banks’
managemen , as many g appled wi h mo gage de aul s and su e ed losses due o high o eclosu e a es.
Du ing he c isis, policymake s om se e al de eloped economies esponsible o he s abili y o he
inancial sys ems implemen ed a se ies o bold iscal and mone a y policies. They p o ided suppo o bo h
deposi o y and non-deposi o y inancial ins i u ions. On he mone a y policy side, hey pu sued an agg es-
si e mone a y expansion s a egy by educing in e es a es o s imula e he economy.
1
On he iscal policy
side, policymake s implemen ed ini ia i es such as TARP in he USA. Addi ionally, banking sec o manage s
unde ook s a egic changes o es uc u e and ealign hei po olio holdings o educe po en ial isks and
enhance hei banks’pe o mance. The 2008 GFC ended in 2009, lea ing signi ican inancial dis up ions.
Al hough all comme cial banks pe o m simila unc ions, hei ac i i ies may a y depending on hei
size.
2
Small banks gene ally concen a e on he e ail side o he business by a ac ing deposi s om
indi iduals and small businesses and making consume and business loans o indi iduals and small busi-
nesses ope a ing in hei communi ies.
3
Small businesses a e c i ical o he U.S. economy, ep esen ing
mos economic ac i i ies and mo e han hal o he p i a e sec o wo k o ce. Be ge e al. (2004) a gue
ha heal hy communi y banks imp o e Small and Medium En e p ises (SMEs) inancing. De Young e al.
(2012) ind ha SMEs ely on communi y banks o inancing. They also a gue ha small banks exace -
ba e economic down u ns du ing he ecession due o low di e si ica ion and limi ed access o he go -
e nmen sa e y ne . Hend ik e al. (2015) also show heo e ically and empi ically ha small egional
banks a e necessa y unding p o ide s in egions wi h low access o inancing. The e o e, he soundness
and e ec i eness o he o e all banking sys em and small banks a e essen ial o policymake s espon-
sible o he p ope unc ioning o he economy.
I is impo an o assess he s eng h and e ec i eness o banks by analyzing hei p o i and cos e i-
ciency. Mo e cos -e icien banks end o be mo e p oduc i e, p o i able, and less suscep ible o economic
down u ns. The e o e, i is essen ial o unde s and he p ima y ac o s in luencing banking e iciency
be o e, du ing, and a e inancial c ises. Assa e al. (2019) s udied he pe o mance o U.S. banks p io o
and du ing, bu no a e , he 2008 GFC and concluded ha cos e iciency is a be e indica o o manage -
ial quali y. Ou esea ch con ibu es o he exis ing li e a u e by examining he de e minan s o cos e i-
ciency in small US banks a e he 2008 GFC. This is signi ican because he indings o e aluable insigh s
o banking managemen and policymake s in p omo ing sa e y and s abili y wi hin he banking sec o .
2. Re iew o li e a u e
In he pas 35 yea s, a signi ican body o inance li e a u e has eme ged ocusing on measu ing he e i-
ciency o banking i ms. The i s s udy on he banking e iciency on ie was conduc ed by She man
and Gold (1985), and since hen, nume ous s udies using di e en me hodologies and inpu and ou pu
de ini ions ha e been ca ied ou o add ess e iciency in he banking indus y.
4
Be ge and Humph ey
(1997) comp ehensi ely e iewed 130 pape s on banking e iciency on ie echniques up o 1995.
Howe e , since hen, he e ha e been signi ican ad ances in banking e iciency li e a u e in e ms o
he de elopmen o e icien on ie echniques and conside a ion o essen ial ac o s a ec ing banking
e iciency. These de elopmen s ha e spu ed esea che s o con inue hei s udy o banking e iciency.
Recen s udies on his opic can be ound in Ash on and Ha dwick (2000), Casu and Molyneux (2001),
Be ge (2007), Fe hi and Pasiou as (2010), Pa adi and Zhu (2013), and Bha ia e al. (2018).
The ecen inancial c isis has spu ed esea che s o explo e i s impac on he inancial sys em and
mac oeconomics. Cap io and Honohan (2002) ha e highligh ed ha a c isis in he inancial sys em, spe-
ci ically wi hin he banking indus y, can lead o a widesp ead economic ecession. Consequen ly, he e
has been a g owing emphasis on examining he e ec s o he inancial c isis on banking e iciency
be o e and a e he c isis. While mos s udies on he impac o he inancial c isis on banking ha e
ocused on he 1997 Asian inancial c isis, i ’s essen ial o ecognize ha he na u e and causes o he
1997 Asian inancial c isis di e om hose o he 2008 GFC.
5
2 R. REZVANIAN ET AL.
The e ha e been se e al published pape s on he impac o he 2008 GFC on he banking indus y.
Howe e , e y ew ha e ocused on he e ec o he c isis on small banks in he Uni ed S a es. In a
s udy by Mo adi-Mo lagh and Babacan (2015), i was epo ed ha he 2008 GFC nega i ely a ec ed he
e iciency o banks in Aus alia, wi h small banks expe iencing a mo e se e e impac . On he o he hand,
Gula i and Kuma (2016) ound ha he impac o he 2008 GFC on Indian banks was ela i ely mild and
ha he eco e y was swi . Addi ionally, Mehdian e al. (2019) epo ed a nega i e impac o he 2008
GFC on he e iciency o la ge U.S. banks.
This s udy aims o con ibu e o he exis ing li e a u e by in es iga ing he impac o he 2008 GFC
on he e iciency o U.S. small banks. While nume ous s udies ha e examined banking e iciency, ew
ha e ocused on he pos -c isis e iciency o small banks. This s udy seeks o ill his gap by analyzing
he ac o s in luencing he cos e iciency o small banks ollowing he 2008 GFC. The emainde o he
pape is di ided as ollows: Sec ion 3 desc ibes he da a and me hodology, Sec ion 4 discusses he
empi ical esul s, Sec ion 5 p esen s he conclusions, and Sec ion 6 add esses he limi a ions and ou -
lines he u u e di ec ion o he s udy.
3. Da a and me hodology
3.1. Da a
This s udy in es iga es he e iciency o small banks ope a ing in he Uni ed S a es a e he 2008 GFC.
The da a was collec ed om he consolida ed Repo o Condi ion (balance shee ) and Repo o Income
(income s a emen ) published by he Fede al Deposi Insu ance Co po a ion (FDIC) websi e.
The na u e o inancial ansac ions in oduces complexi y in de ining inpu and ou pu in bank e i-
ciency and p oduc i i y s udies. Two main de ini ions o inpu and ou pu a iables a e commonly used
in hese s udies: he in e media ion and p oduc ion app oaches. The in e media ion app oach, in o-
duced by Sealey and Lindley (1977), iews banks as in e media ies o se ices, using inpu s such as
deposi s, ixed asse s, and employees o p oduce ea ning asse s like loans and in es men s. The p oduc-
ion app oach, in oduced by Bens on (1965), conside s banks as u ilizing inpu s such as ixed asse s and
employees o p oduce se ices like deposi s and ea ning asse s such as loans and in es men s.
6
Fo his s udy, we applied he in e media ion app oach, assuming ha small banks p o ide in e medi-
a ion se ices by collec ing deposi s om sa e s (bo h in e es - and non-in e es -paying deposi s and
o he liabili ies) and hen channeling hese unds o de ici uni s o he economy h ough p o iding
loans (such as Real Es a e Loans, Comme cial and Indus ial Loans, and o he loans) and in es ing in a i-
ous in es men secu i ies. Unde his app oach, we de ine inpu and ou pu a iables as ollows:
Y1 ¼Comme cial and indus ial loans.
Y2 ¼Real es a e loans.
Y3 ¼O he loans.
Y4 ¼To al in es men secu i ies.
X1 ¼To al Liabili ies.
X2 ¼Numbe o ull- ime equi alen employees.
X3 ¼P emises and ixed asse s.
P1 ¼Uni p ice o in e es ¼To al in e es expenses/To al in e es -bea ing liabili ies.
P2 ¼Uni p ice o labo ¼Wages & bene i s expenses/# o ull- ime equi alen employees.
P3 ¼Uni p ice o ixed asse s ¼To al expenses o ixed asse s/To al ixed asse s.
TC ¼To al cos , he sum o o al in e es and non-in e es expenses.
TA ¼To al asse s, as a measu e o bank size, as included in he bank’s balance shee .
The measu es o banking e iciency can a y signi ican ly depending on he sample, inpu -ou pu
speci ica ions, and me hodology used. Fe ie and Lo ell (1990) obse ed subs an ial di e ences in e i-
ciency among di e en speci ica ions. Baue e al. (1998) ound a ying e iciency sco es using i e di e -
en me hodologies. Mes e (1997) a gues ha U.S. banks a e oo di e se o compa ison wi h a common
benchma k and ejec s he hypo hesis o a common cos unc ion o all banks. We also posi ha
COGENT ECONOMICS & FINANCE 3
assuming all banks o all sizes ha e he same p oduc ion echnology is o e ly simplis ic when measu ing
hei cos e iciency using a single cos -e icien on ie . In his a icle, we u ilize a la ge, high-quali y
sample o simila small banks ha sha e he same objec i e and p oduc ion model, allowing us o
expec a common p oduc ion echnology.
We u ilized da a om he FDIC Call Repo o iden i y a selec ion o small FDIC-insu ed banks span-
ning om 2010 o 2021. Al hough he e is no s anda d de ini ion o “small banks,”we classi ied hem as
banks wi h o al asse s below $172,000,000.
7
Ou ocus on small banks s emmed om wo key easons:
i s ly, he unique composi ion o asse s and liabili ies o small banks se s hem apa om medium and
la ge banks, and secondly, we hypo hesized ha small banks migh espond di e en ly o inancial c ises
compa ed o hei la ge coun e pa s. Addi ionally, we excluded e y small banks wi h o al asse s
below $73,000,000, as we belie e hey a e si ua ed in emo e u al a eas and possess dis inc asse and
liabili y p o iles, making hem less suscep ible o global inancial c ises. We did no conside he s uc-
u al aspec s o he banking co po a ions o hei geog aphic loca ions.
Ou analysis co e s a 12-yea pe iod om 2010 o 2021. To main ain consis ency, we only included small
banks ha we e ope a ional h oughou his en i e pe iod, esul ing in a o al o 10,495 small banks. This
ansla es o an a e age o app oxima ely 875 small banks pe yea . Table 1 p esen s summa y s a is ics o
he ou pu s and inpu s o hese 10,495 small banks ope a ing be ween 2010 and 2021.
8
The numbe o
banks a ied yea ly, om 829 in 2021 o 895 in 2018. While yea ly summa y s a is ics o ou pu s and inpu s
a e a ailable, hey a e no included he e o b e i y bu can be p o ided upon eques .
9
4. Me hodology
In simple e ms, e iciency is he compa ison be ween he ac ual ou pu s p oduced by a se o inpu s
and he op imal ou pu s ha could be p oduced by he same inpu s (Coelli e al., 2005). The on ie
e iciency me hodology is used o compa e ac ual ou pu /inpu alues wi h he op imal ou pu /inpu
alues. In his s udy, we employ he on ie e iciency me hodology o assess he e iciency o U.S. small
banks pos he 2008 GFC. This me hodology encompasses bo h pa ame ic and non-pa ame ic echni-
ques, bo h o which es ablish an e icien on ie om which indi idual bank e iciency is calcula ed.
The pa ame ic app oach cons uc s he e icien on ie based on a speci ic p oduc ion o cos unc ion
and allows o andom e o , whe eas he non-pa ame ic echniques do no assume a speci ic unc ional
o m and do no allow o andom e o .
10
Addi ionally, bo h me hods can be inpu o ou pu -o ien ed
and a e adap able o analyze scale e iciency.
In ou analysis, we u ilize a non-pa ame ic app oach o iginally in oduced by Fa ell (1957), u he
de eloped by Cha nes e al. (1978), and ex ended by F€
a e e al. (1985). This me hod in ol es c ea ing
inpu -o ien ed e icien on ie s h ough he solu ion o mul iple Linea P og amming (LP) p oblems,
which allows us o calcula e he e iciency o each bank. The solu ions o hese LPs yield i e e iciency
measu es: O e all E iciency (OE), O e all Technical E iciency (TE), Alloca i e E iciency (AE), Pu e
Technical E iciency (PTE), and Scale E iciency (SE).
To de e mine a bank’s e iciency, we i s sol e a linea p og amming model o ind he po en ial min-
imum o al cos and hen compu e he OE o each bank i each yea as ollows:
C
i¼min px
yizY
xizX
z0
(1)
Table 1. Summa y s a is ics o ou pu s, inpu s, p ice o inpu s, and o al cos s o he pooled sample; yea 2010–2021
(N¼10,495).
2010–2021 Y1 Y2 Y3 Y4 X1 X2 X3 P1 P2 P3 TC
Mean 21020 4166 2556 2056 50136 14.33 783 0.0064 66.17 0.6975 1424
Min 0 0 0 0 5090 2 0 0.0001 0.042 0 0.687
Max 311477 85441 120616 64299 281681 157 8993 0.0704 834.2 108 26852
STD 14544 4214 3550 5682 21921 7.54 903 0.0044 21.09 2.346 788
Y1 ¼Real Es a e Loan, Y2 ¼Comme cial and Indus ial Loan, Y3 ¼Consume Laon, 4 ¼Secu i ies, X1 ¼Deposi s, X2 ¼Labo , X3 ¼P emises
and ixed asse s, P1 ¼in e es cos , P2 ¼Labo cos , P3 ¼Cos o p emises and ixed asse s, and TC ¼To al cos s.
4 R. REZVANIAN ET AL.
whe e C
i
is he po en ial minimum o al cos o p oduc ion o bank i, P is a ec o o inpu p ices, y
i
is
a ec o o ou pu s p oduced by bank i o dimension (1, m), x
i
is a ec o o inpu s u ilized by bank i o
dimension (1, n), Y is a ma ix o obse ed ou pu s o all companies in he sample o dimension (m, N),
X is a ma ix o obse ed inpu s o all companies in he sample o dimension (n, N), z is an in ensi y ec-
o , N is he numbe o i ms in he sample.
Ha ing he po en ial minimum o al cos o p oduc ion o bank i calcula ed (C
i
), we hen, he OE o
bank i as:
OE ¼C
i=Ci
To gain insigh s in o he sou ces o ine iciency, he OE can be b oken down in o O e all TE and AE.
To de e mine he TE o bank i in a gi en yea ( ¼2010 …2021), he ollowing linea p og amming p ob-
lem is sol ed o each bank, o each yea in he sample:
min ki
yizY
kixizX
z0
i¼1, ......:,N
(2)
whe e all a iables a e as de ined ea lie .
k
i
is he measu e o e iciency (o e all echnical e iciency, TE), es ima ed o bank i ela i e o a on-
ie ha exhibi s cons an e u ns o scale (CRS).
We ha e b oken down his measu e in o wo mo e e iciency measu es o be e unde s and he
sou ces o o e all echnical ine iciency. The i s measu e is Pu e Technical E iciency (PTE), which
assesses he bank’s e iciency ela i e o a on ie ha demons a es cons an and a iable e u ns o
scale. The o he e iciency measu e, he SE measu e, o e s insigh s in o whe he he bank ope a es a
cons an e u ns o scale (op imal scale) o a inc easing o dec easing e u ns o scale (sub-op imal
scale). Fo mally, he TE o bank i can be exp essed as:
TEi¼PTEiSEi, Whe e SEiis a io o TEi o PTEi:
To compu e PTE, deno ed by w
i,
o bank i, Eq. (2) is sol ed wi h an addi ional cons ain ha is
PN
i¼1zi¼1, hen we ha e SE
i
¼k
i
/w
i
. Bank i is called scale e icien i SE
i
¼1. I 0 SE
i
<1, bank i is
called scale ine icien .
To so he sou ce o scale ine iciency o bank i, we esol e Eq. (2) a e eplacing PN
i¼1zi¼1, by
PN
i¼1zi1, and ob aining an e iciency measu e deno ed by x. Following F€
a e e al. (1985) and Tu k
A iss e al. (2007), i bank i is no scale-e icien and x¼w, he sou ce o scale ine iciency bank i is
dec easing e u ns o scale (DRS). On he o he hand, i bank i is no scale-e icien and x6¼ w, he sou ce
o scale ine iciency o his bank is because o inc easing e u ns o scale (IRS).
Finally, we compu e AE, which is an indica ion o he de ia ion o he ope a ion om he op imal
inpu mix o esou ces as: AE
i
¼OE
i
/TE
i
. We summa ize he e iciency measu es de ined abo e as
ollows:
OEi¼TEiAEi,TE
i¼PTEiSEi, and hen OEi¼PTEiSEiAEi
To p oceed wi h he me hodology men ioned abo e, we ha e wo app oaches o measu ing e i-
ciency sco es o indi idual banks: yea -speci ic and pooled sample measu es. Fi s , we calcula e each
bank’s e iciency measu es ela i e o each yea ’s on ie using he banks’inpu s, ou pu s, and o al cos
o ha pa icula yea (2010 o 2021). These e iciency measu es a e e e ed o as "yea -speci ic meas-
u es" because hey a e calcula ed ela i e o he co esponding yea ’s on ie . The e icien on ie s o
each yea a e de e mined using he da a o ha speci ic yea . The unde lying assump ion is ha he
yea ly on ie s ep esen he a ailable echnology o all banks in he sample o ha yea . Isik and
Hassan (2003) ou lined wo ad an ages o his app oach. Fi s ly, i is mo e lexible and, he e o e, mo e
app op ia e han es ima ing a single mul iyea on ie o he banks in he sample. Secondly, i pa ially
mi iga es he p oblems ela ed o he lack o andom e o in DEA by allowing an e icien bank in one
COGENT ECONOMICS & FINANCE 5
yea o be ine icien in ano he yea based on he assump ion ha e o s due o luck o da a p oblems
a e no consis en o e ime in a gi en yea .
Nex , we ecalcula e he e iciency measu es o each bank by pooling he da a o all yea s. We call
hese "pooled sample e iciency measu es," calcula ed ela i e o he common on ie s om 2010 o
2021. The unde lying assump ion is ha o e he 12 yea s unde s udy, all banks could ha e access o
he bes a ailable echnology, ha is, hey a e acing common on ie s. Chen e al. (2015) aise conce ns
abou using a single on ie ha en elops all banks o all yea s. Using a single on ie o all yea s
may unde es ima e he e iciency measu es because banks a e compa ed wi h he mos e icien banks
ope a ing unde he bes a ailable echnology du ing he s udy. In his s udy, we will use bo h
app oaches.
5. Empi ical esul s
Table 1 p o ides he Summa y S a is ics o ou pu s, inpu s, p ice o inpu s, and o al asse s o 10,495
small banks om 2010-2021. A e he 2008 GFC, ea ning asse s ( he sum o loans and in es men s)
accoun ed o 56.1% o o al asse s. Among ea ning asse s, eal es a e loans (Y1) ep esen ed he la ges
po ion a 68.56% o ea ning asse s and 35.20% o o al asse s, ollowed by comme cial and indus ial
loans (Y2) a 13.43% o ea ning asse s and 6.71% o o al asse s.
The o al cos pe dolla o ea ning asse s was $0.0481, wi h labo cos (P2X2) being he highes
inpu cos a $0.0315 pe dolla o ea ning asse s, ollowed by he in e es cos a $0.011 pe dolla o
ea ning asse s.
Based on he me hodology and da a ou lined in sec ion 3, we ini ially calcula ed he e iciency meas-
u es o small banks o each yea om 2010 o 2021 using he annual e icien on ie . The summa y
s a is ics o e iciency measu es a e p esen ed in Table 2, while Table 3 p o ides he same in o ma ion
o each yea . I ’s wo h no ing ha he annual e iciency measu es, as indica ed by Tables 2 and 3, ha e
consis en ly emained low. The a e age OE o he 10,495 small banks ope a ing be ween 2010 and 2021
was 32.93%. No ably, he main con ibu o o his ine iciency has been low TE a 48.14%, a he han
AE a 68.85%. A b eakdown o TE in o PTE and SE u he e eals ha he p incipal cause o he low TE
has been bo h low PTE a 56.955% and SE a 57.77%. In summa y, he p ima y ac o con ibu ing o he
o e all low e iciency o small banks has been he combina ion o highe pu e echnical and scale
ine iciencies.
The in o ma ion in Table 3 shows he yea ly s a is ics o e iciency measu es o small banks om
2010 o 2021. Figu e 1 p o ides a g aphical ep esen a ion o he same in o ma ion. Acco ding o
Table 3 and Figu e 1, he ope a ional e iciency (OE) measu e o small banks has emained low o all
12 yea s a e he 2008 GFC, anging om a maximum o 36.29% in 2010 o a minimum o 29.98% in
2015. The p ima y cause o he low OE has been he low TE, which is, in u n, caused by a low le el o
PTE and SE.
Nex , in ou analysis, we es ablished a common e iciency on ie by consolida ing da a om he
12 yea s spanning 2010 o 2021, pos he 2008 GFC. The summa y s a is ics o e iciency measu es a e
p esen ed in Table 4, while Table 5 p o ides he same in o ma ion o each yea . As a as we know,
he e has no been a compa able s udy using a non-pa ame ic echnique o in es iga e he cos e i-
ciency o U.S. small banks pos -2008 GFC. Howe e , Elyasiani and Mehdian (1995) esea ched he e i-
ciency o small banks be o e and a e he 1980s de egula ion. They ound ha he e iciency o small
banks declined du ing he pos -de egula ion e a compa ed o he p e-de egula ion e a. Akhigbe and
Table 2. Summa y s a is ics o e iciency measu es o he pooled sample (2010–2021, TN ¼10,495).
OE AE TE PTE SE
Mean 0.3293 0.6885 0.4814 0.5695 0.5777
Min 0.0881 0.1770 0.0960 0.1740 0.0901
Max11111
STD 0.1148 0.1582 0.1480 0.1536 0.1522
OE ¼O e all E iciency, AE ¼Alloca i e E iciency, TE ¼O e all Technical E iciency, PTE ¼Pu e Technical E iciency, SE ¼Scale E iciency,
TN ¼To al Numbe o obse a ions.
6 R. REZVANIAN ET AL.
McNul y (2003) examined he compa a i e p o i e iciency o small banks om 1990 o 1996 and con-
cluded ha small banks a e mo e p o i -e icien han la ge banks.
Based on Table 4, he a e age OE o he 10,495 small banks ope a ing wi hin he common e icien
on ie om 2010 o 2021 was 25.52%. The p ima y con ibu o s o his OE ine iciency we e low TE
(38.56%) a he han AE (67.23%) e iciency. B eaking down he TE in o i s componen s o PTE and SE
e eals ha he main eason o low TE is low PTE (47.75%) and SE (53.78%). When conside ing hese
Table 3. Summa y s a is ics o yea ly e iciency measu es ela i e o yea ly e icien on ie .
OE AE TE PTE SE
2010 (N¼878)
Mean 0.3629 0.6901 0.5270 0.6151 0.5887
Min 0.0960 0.2870 0.1120 0.2280 0.1125
Max 1 1 1 1 1
STD 0.1512 0.1423 0.1770 0.1692 0.1551
2011 (N¼877)
Mean 0.3353 0.6947 0.4838 0.5801 0.5786
Min 0.0955 0.2830 0.1120 0.2150 0.1056
Max 1 1 1 1 1
STD 0.1471 0.14289 0.1744 0.1744 0.1581
2012 (N¼875)
Mean 0.3085 0.6539 0.4769 0.5713 0.5412
Min 0.0900 0.2320 0.1150 0.2050 0.1004
Max 1 1 1 1 1
STD 0.1409 0.1583 0.1751 0.1743 0.1537
2013 (N¼879)
Mean 0.3409 0.7162 0.4827 0.5765 0.5985
Min 0.089095 0.265 0.134 0.206 0.1169562
Max 1 1 1 1 1
STD 0.1429 0.1582 0.1757 0.1785 0.1631
2014 (N¼878)
Mean 0.3578 0.7480 0.4831 0.5883 0.6138
Min 0.0987 0.2490 0.1440 0.2240 0.0987
Max 1 1 1 1 1
STD 0.1501 0.1583 0.1723 0.1757 0.1686
2015 (N¼867)
Mean 0.2988 0.5156 0.5745 0.5805 0.5115
Min 0.0888 0.1140 0.1400 0.1400 0.1140
Max 1 1 1 1 1
STD 0.1488 0.1450 0.1820 0.1885 0.1433
2016 (N¼878)
Mean 0.3352 0.6901 0.4897 0.5823 0.5779
Min 0.0887 0.1900 0.1280 0.2200 0.1182
Max 1 1 1 1 1
STD 0.1504 0.1643 0.1737 0.1740 0.1680
2017 (N¼879)
Mean 0.3377 0.7167 0.4769 0.5619 0.6041
Min 0.0929 0.2010 0.1180 0.2140 0.1236
Max 1 1 1 1 1
STD 0.1502 0.1684 0.1718 0.1741 0.1686
2018 (N¼895)
Mean 0.3344 0.7560 0.4464 0.5408 0.6214
Min 0.0914 0.1830 0.1140 0.1910 0.1086
Max 1 1 1 1 1
STD 0.1518 0.1570 0.1744 0.1813 0.1665
2019 (N¼895)
Mean 0.3173 0.7239 0.4383 0.5463 0.5846
Min 0.0891 0.1780 0.0048 0.2110 0.1064
Max 1 1 1 1 1
STD 0.1462 0.1551 0.261 0.1813 0.1672
2020 (N¼865)
Mean 0.3105 0.7510 0.4190 0.5255 0.5955
Min 0.0884 0.1980 0.1020 0.2070 0.1106
Max 1 1 1 1 1
STD 0.1458 0.1541 0.1796 0.1854 0.1660
2021 (N¼829)
Mean 0.2895 0.5991 0.4810 0.5654 0.5125
Min 0.0914 0.1880 0.1070 0.2030 0.1203
Max 1 1 1 1 1
STD 0.1485 0.1676 0.1922 0.1946 0.1590
OE ¼O e all E iciency, AE ¼Alloca i e E iciency, TE ¼O e all Technical E iciency, PTE ¼Pu e Technical E iciency, SE ¼Scale E iciency,
N¼Numbe o Obse a ions pe yea .
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