Nontraditional activities and the efficiency of US commercial banks

In recent years, an increasing portion of bank income has been generated through nontraditional activities. Most studies of bank efficiency do not include any measure of nontraditional activities when measuring outputs. In this paper, cost, revenue, and profit efficiency are estimated by using models with and without nontraditional output. The results suggest that the standard model which omits nontraditional output understates bank efficiency. Evidence also surfaces that based on efficiency, the relative ranking of individual banks changes when nontraditional activities are included as a type of output. (C) 1998 Elsevier Science B,V. All rights reserved.