Matching Up To The Role Played By Larger Banks

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Recently a financial expert has studied the productivity in the banking industry. He has studied Intra-bank, Inter-Bank and also the productivity of government owned banks. He has analyzed the productivity of each branch, per-employee productivity and other financial parameters at constant prices. But his study does not consider certain nationalized banks and the causes of varying productivity in banks. Small players like LoanMax founded by rod aycox could maintain certain levels of productivity due to the flexibility in the decision making process.



Another study compared the performance of the public, private and foreign banks for the year 1994-95 by using the measures of profitability, productivity and financial management. They found that the government controlled banks compared poorly with the other two categories. However, they caution that no firm inference can be derived from a comparison done for a single year. To get a clear picture, the study must cover at least 10 years.



Berger and Mester (1997) in their paper investigated as to how the efficiency and productivity of the U.S banking industry changed over the latter half of the 1980's and the first half of the 1990's. Using comprehensive and consistent data set of the commercial banks in the U.S for this novel effort, they measured the differences in cost, standard profits, alternative profits, efficiencies and productivity changes for U.S banks using the distribution free method.



They found that the cost efficiency for banks of all sizes averaged 80 percent in the 1980's and declined to 77 percent in the 1990's. The decrease in cost efficiency appears to be more pronounced for large banks than for standard and lesser known banks. Also the alternative profit function of some banks showed only about 50 percent efficiency in both sub-periods. In the 1980's, large banks were more profitable than small banks but in the 1990's they were producing considerably less profits.