A nonparametric approach for assessing productivity dynamics of large US banks

The 1980s marked an era of substantial change for the U.S. commercial banki ng industry. An issue of considerable interest to banking analysts and econ omists alike is whether the intensified competitive pressure, generated by deregulation and notable financial innovations, enhanced productivity. To i nvestigate the response to these changes, the nonparametric Malmquist index is used to evaluate productivity dynamics. A statistically significant pro ductivity surge found between 1983 and 1984 is followed by productivity reg ress the next period; post-1985, sustained productivity progress is observe d for the remainder of the decade. Productivity movements are primarily att ributable to technological changes rather than scale changes or convergence to the production frontier.