SUPERVISION AND COST EFFICIENCY IN BANKING

This paper suggests a link between bank operating efficiency and feder al supervisor. Since supervisory priorities can vary by the context in which the supervisor was conceived, resulting differences in supervis ory policies and procedures may underlay differences in the operating efficiency of their supervised banks. The effect on bank operating exp enses is estimated at the individual bank level for each of four size strata using a translog cost function, controlling for bank characteri stics and the impact of scale and scope economies. Results generally s upport a conclusion that bank operating cost differences exist by supe rvisor, except in the largest size stratum.