A Nonparametric Approach for Assessing Productivity Dynamics of Large U.S. Banks

The 1980s marked an era of substantial change for the US commercial banking industry. An issue of considerable interest to banking analysts and economists alike is whether the intensified competitive pressure, generated by deregulation and notable financial innovations, enhanced productivity. To investigate the response to these changes, the non-parametric Malmquist index is used to evaluate productivity dynamics. A statistically significant productivity surge found between 1983 and 1984 is followed by productivity regress the next period; post-1985, sustained productivity progress is observed for the remainder of the decade. Productivity movements are primarily attributable to technological changes rather than scale changes or convergence to the production frontier.