INSIDE THE BLACK-BOX - WHAT EXPLAINS DIFFERENCES IN THE EFFICIENCIES OF FINANCIAL INSTITUTIONS

Over the past several years, substantial research effort has gone into measuring the efficiency of financial institutions, Many studies have found that inefficiencies are quite large, on the order of 20% or mor e of total banking industry costs and about half of the industry's pot ential profits. There is no consensus on the sources of the difference s in measured efficiency. This paper examines several possible sources , including differences in efficiency concept, measurement method, and a number of bank, market, and regulatory characteristics. We review t he existing literature and provide new evidence using data on US banks over the period 1990-1995.