An evaluation of the productive efficiency of savings and loans

A nonparametric linear programming approach is adopted to measure the productive efficiency of thrift financial institutions. The methodology is applied to a sample of California thrifts in 1989, yielding high mean efficiency scores. High efficiency scores correspond to high levels of operating efficiency. Estimation of a truncated regression model indicates that the major determinants of thrift efficiency are organization form, management style, risk, and firm size. Applying the methodology to a subset of thrifts from 1986 which had failed by 1989 shows technical inefficiency to be a significant indicator of a high probability of failure.