Efficiency versus risk in large domestic US banks
Abstract
This paper studies the profit efficiency of a sample of large U.S. commercial banks and explores how this performance varies with selected measures of bank risk reflecting aspects of credit risk, liquidity risk, and insolvency risk. We use a standard profit function and the stochastic frontier approach, and compare two standard functional forms – Cobb‐Douglas and translog – to assess the tradeoff between precision and parsimony. We find that profit efficiency is sensitive to credit risk and insolvency risk but not to liquidity risk or to the mix of loan products.
Keywords
Citation
Fan, L. and Shaffer, S. (2004), "Efficiency versus risk in large domestic US banks", Managerial Finance, Vol. 30 No. 9, pp. 1-19. https://doi.org/10.1108/03074350410769245
Publisher
:Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited