erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Financial Crisis and Cost-Efficiency of Banking Systems in OECD's Countries: What Can Be Learned from Data Envelopment Analysis

Sait Gattoifi (Bilkent University)

Abstract  

This study is an attempt to detect the impact of major financial crises on the cost-efficiency of banking systems in several OECD's member countries using Data Envelopment Analysis (DEA) technique. DEA is a mathematical programming based technique used extensively in the literature as alternative to the classical stochastic frontier technique. Using data about the quantities and prices of inputs used to produce the outputs, the relative cost-efficiency coefficients are computed and the best performing units are identified. Deviations from the best performers have a natural interpretation of inefficiency. We find that countries, which experienced financial crises, show a continuous deterioration in the cost-efficiency of their banking system for the period preceding the crisis. Moreover, we find that some countries, like Turkey and Portugal, show a chronic cost-inefficiency of their banking system. Finally, our results confirm the findings of other studies that Scandinavian ountries' banking system has the best cost-efficiency level among OECD's member countries. These findings suggest that Cost-Efficiency analysis using DEA may perform as a leading indicator and accurate tool for early warning of major financial crises.

Economic Research Center
Middle East Technical University
06531 Ankara Turkey
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e-mail: metuerc@metu.edu.tr