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Efficiency in the European banking industry: an exploratory analysis to rank contries

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  • Jacob A. Bikker

Abstract

The introduction of the Euro in EMU is enhancing international competition between European banks, forcing banks to become more efficient. Which countries will be effected the most? The stochastic cost frontier approach is used to estimate the X-efficiency of the European banks, and a multiproduct translog cost function to compare cost levels. On average, Spanish, French and Italian banks appear to be less efficient than those in Germany, the Netherlands and the UK, while banks in Luxembourg, Belgium and Switzerland are the most efficient. Large differences in average X-inefficiencies and cost-levels between countries exist, Spain being around 40% above and Luxembourg about 35% below the European average. Large-scale consolidation and rationalisation of the banking industry are expected. Furthermore, the analysis provides evidence that X-efficiency estimates from single-country studies, as often found in the literature, can be very misleading.

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Bibliographic Info

Article provided by ULB -- Universite Libre de Bruxelles in its journal Cahiers Economiques de Bruxelles.

Volume (Year): 17 (2001)
Issue (Month): ()
Pages:

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Handle: RePEc:bxr:bxrceb:2013/13187

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  1. Simon H. Kwan & Robert A. Eisenbeis, 1995. "An analysis of inefficiencies in banking: a stochastic cost frontier approach," Working Papers in Applied Economic Theory 95-12, Federal Reserve Bank of San Francisco.
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Citations

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Cited by:
  1. Jacob Bikker & Janko Gorter, 2008. "Performance of the Dutch non-life insurance industry: competition, efficiency and focus," DNB Working Papers 164, Netherlands Central Bank, Research Department.
  2. J.A. Bikker, 2003. "Efficiency and Cost Differences across Countries in a Unified EuropeanBanking Market," DNB Staff Reports (discontinued) 87, Netherlands Central Bank.
  3. Gabe de Bondt & Benoit Mojon & Natacha Valla, 2005. "Term structure and the sluggishness of retail bank interest rates in euro area countries," Working Paper Series 518, European Central Bank.
  4. Dániel Holló & Márton Nagy, 2006. "Bank Efficiency in the Enlarged European Union," BIS Papers chapters, in: Bank for International Settlements (ed.), The banking system in emerging economies: how much progress has been made?, volume 28, pages 217-35 Bank for International Settlements.
  5. Jaap Bikker & Sandra Wesseling, 2003. "Intermediation,integration and internationalisation: a survey on banking in Europe," DNB Occasional Studies 103, Netherlands Central Bank, Research Department.
  6. Jose Pastor & Lorenzo Serrano, 2006. "The Effect of Specialisation on Banks' Efficiency: An International Comparison," International Review of Applied Economics, Taylor and Francis Journals, vol. 20(1), pages 125-149.
  7. Bank for International Settlements, 2006. "The banking system in emerging economies: how much progress has been made?," BIS Papers, Bank for International Settlements, number 28, March.
  8. Marques Ibanez, David & Molyneux, Philip, 2001. "Integration of European Banking and Financial Markets," EIFC - Technology and Finance Working Papers 14, United Nations University, Institute for New Technologies.
  9. Jacob A. Bikker & Jaap W.B. Bos, 2005. "Trends in Competition and Profitability in the Banking Industry: A Basic Framework," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  10. D. Jansen & J. de Haan, 2003. "Increasing concentration in european banking: a macro-level analysis," WO Research Memoranda (discontinued) 743, Netherlands Central Bank, Research Department.
  11. Alexis Penot, 2002. "Appréciations et conséquences possibles de l'hétérogénéité structurelle de la zone euro," Revue d'Économie Financière, Programme National Persée, vol. 65(1), pages 153-175.
  12. Berger, Allen N., 2003. "The efficiency effects of a single market for financial services in Europe," European Journal of Operational Research, Elsevier, vol. 150(3), pages 466-481, November.
  13. L.W. Punt & M.C.J. van Rooij, 1999. "The profit-structure relationship, efficiency and mergers in the European banking industry: an empirical assessment," WO Research Memoranda (discontinued) 604, Netherlands Central Bank, Research Department.
  14. Emili Tortosa-Ausina, 2002. "Cost Efficiency and Product Mix Clusters across the Spanish Banking Industry," Review of Industrial Organization, Springer, vol. 20(2), pages 163-181, March.
  15. Abdelaziz Rouabah, 2002. "Economies d?échelle, économies de diversification et efficacité productive des banques luxembourgeoises : une analyse comparative des frontières stochastiques sur données en panel," BCL working papers 3, Central Bank of Luxembourg.

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