Non-parametric efficiency analysis in banking: a study of German universal banks

Based on 1989-92 data of 1407 German universal banks we perform a non-parametric analysis of efficiency in the German banking industry. Applying the „data envelopment“ (DEA) approach, we solve four linear programs for each bank to calculate measures of overall, technical, allocative, and scale efficiency. In addition, we use the measure of scale elasticity recently suggested for DEA by Førsund and Hjalmarsson. Our results on overall efficiency and its first two components are in line with previous econometric evidence, emphasizing in particular the importance of technical inefficiency. However, DEA leads to a much lower efficient size than parametric frontier analysis