A three-phase comparative efficiency analysis of US and EU banks

We examine the efficiency differences between EU and U.S banks over 2000-2018. European banks are lagging behind the U.S in terms of technical efficiency both before and after the crisis. European banks lag in terms of efficiency yet the European sector has actually grown by 16% since the period prior to the crisis, with the U.S posting a more modest 6% increase in efficiency. Our results are robust and further backed by the Tobit and Differences-in-Differences estimations with the overall efficiency difference between the two sets being the intensity of their transvariation. Larger banks achieve higher technical efficiency by increasing their credit risk while smaller banks by reducing their risk exposure further exacerbating the too-big-tofail divide. Our results are of interest to investors, banking practitioners and regulators since the lack of common regulatory standards between EU/US banks could affect both the competitiveness and the stability of the financial system.