Credit risk is crucial to understanding banks’ production technology and should be explicitly accounted for when modeling the latter. The banking literature has largely accounted for risk by using ex-post realizations of banks’ uncertain outputs and the variables intended to capture risk....

This paper presents new nonparametric measures of scale economies and TFP growth for U.S. banks. Unlike previous studies that use fully nonparametric models, our approach controls for time-invariant unobserved heterogeneity among banks in estimating returns to scale, TFP growth and its...

This paper raises concerns about the econometric approach used in the literature to estimate credit unions’ production technologies. We show that the existing studies did not recognize heterogeneity amongst credit unions’ technologies as captured by (endogenously selected) differing output...

This paper presents new evidence regarding the relation between profit, revenue, and cost efficiencies of U.S. commercial banks. Building on the widely used nonstandard profit function (NSPF) approach, we show (i) why estimation of NSPF would be wrong and (ii) how revenue and cost efficiencies...