Technical progress, inefficiency, and productivity change in US banking, 1984-1993

Studies often find that, on average, U.S. commercial banks are quite inefficient, and we find that banks became more technically inefficient between 1984 and 1993. From a new decomposition of the Malmquist productivity index into changes in pure technical and scale efficiency, as well as both pure technical changes and changes in scale of technology, we find that much of the inefficiency increase can be attributed to the general failure of banks to adopt technological improvements made by a few banks that advanced the efficient frontier. Small banks experienced especially large decreases in both efficiency and productivity.