A Non-parametric Analysis of the Italian Banking System's Efficiency

This paper analyses through non-parametric methods the technical efficiency of a cross-section of 728 Italian banks belonging to different institutional categories (limited companies, credit societies, rural banks and credit cooperatives). It applies an extension of the Free Disposal Approach, which takes into account the existence of input and output slacks when computing technical efficiency. The main results point to a slack structure heavily weighted toward capital inputs, showing that the proliferation of branches after 1990 has engendered significant over-branching in the Italian banking sector. The evidence is also compatible with a direct relationship between the economic environment in southern Italy and the lower technical efficiency of southern Italian credit cooperatives.