Resolving the deposit dilemma: A new DEA bank efficiency model

Dmytro Holod and Herbert F. Lewis

Journal of Banking & Finance, 2011, vol. 35, issue 11, 2801-2810

Abstract: One of the weaknesses of current bank efficiency models is a disagreement as to the role of deposits in the bank production process. Some models view deposits as an input, while others view them as an output. Such disparity of approaches results in inconsistent efficiency estimates. In this study we propose an alternative Data Envelopment Analysis (DEA) bank efficiency model that treats deposits as an intermediate product, thus emphasizing the dual role of deposits in the bank production process. Consequently, the effect of the amount of deposits on bank efficiency depends on the efficiency at both stages of the bank production process. The main advantage of our model is that it does not require a researcher to make a judgment call as to whether having more (production approach) or less (intermediation approach) deposits is "better" for bank efficiency. Our unified framework has the potential to produce more consistent efficiency estimates.

Keywords: Bank; efficiency; DEA; Financial; intermediation; Input-output; models (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (88)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:11:p:2801-2810

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