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Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe

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Author Info
Vander Vennet, Rudi
Abstract

+In contrast to the United States, where the banking system has historically been fragmented, the Second Banking Directive allows European banks both to form financial conglomerates and hold equity stakes in nonfinancial companies. This paper analyzes the cost and profit efficiency of European financial conglomerates and universal banks. I find that conglomerates are more revenue efficient than their specialized competitors and that the degree of both cost and profit efficiency is higher in universal banks than in nonuniversal banks. These results indicate that the current trend toward further de-specialization may lead to a more efficient banking system. An investigation of the equity betas under varying business cycle conditions supports the hypothesis of superior monitoring capabilities on the part of universal banks. Finally, profit regressions suggest that operational efficiency has become the major determinant of bank profitability and that oligopolistic rents have become less prevalent in European banking.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 34 (2002)
Issue (Month): 1 (February)
Pages: 254-82
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Handle: RePEc:mcb:jmoncb:v:34:y:2002:i:1:p:254-82

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Holopainen, Helena, 2007. "Integration of financial supervision," Research Discussion Papers 12/2007, Bank of Finland. [Downloadable!]
  2. Laurent Weill, 2008. "Convergence in Banking Efficiency Across European Countries," Working Papers of LaRGE (Laboratoire de Recherche en Gestion et Economie) 2008-07, Laboratoire de Recherche en Gestion et Economie, Université Louis Pasteur, Strasbourg (France). [Downloadable!]
  3. Bernardo Maggi & Stefania P. S. Rossi, 2003. "An efficiency analysis of banking systems: a comparison of European and United States large commercial banks using different functional forms," Vienna Economics Papers 0306, University of Vienna, Department of Economics. [Downloadable!]
  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. [Downloadable!]
  5. Laeven, Luc & Levine, Ross, 2005. "Is There a Diversification Discount in Financial Conglomerates?," CEPR Discussion Papers 5121, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Bos, J.W.B. & Koetter, M., 2006. "Handling losses in translog profit models," MPRA Paper 1433, University Library of Munich, Germany. [Downloadable!]
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  7. Trevor Fitzpatrick & Kieran McQuinn, 2005. "Labour Cost Efficiency in UK and Irish Credit Institutions," The Economic and Social Review, Economic and Social Studies, vol. 36(1), pages 45–66. [Downloadable!]
  8. O. De Jonghe & R. Vander Vennet, 2007. "Competition versus Efficiency: What drives franchise values in European banking?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/491, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  9. Manlagnit, Ma. Chelo V. & Lamberte, Mario B., 2003. "Integrating Gender Perspectives in Evaluating the Efficiency of COFI: The Case of Credit Cooperatives in the Philippines," Discussion Papers DP 2003-06, Philippine Institute for Development Studies. [Downloadable!]
  10. Peter Egger & Franz R. Hahn, 2006. "Endogenous Bank Mergers and Their Impact on Banking Performance," WIFO Working Papers 271, WIFO. [Downloadable!]
  11. Nicos C. Kamberoglou & Elias Liapis & George T. Simigiannis & Panagiota Tzamourani, 2004. "Cost Efficiency in Greek Banking," Working Papers 09, Bank of Greece. [Downloadable!]
  12. R. Vander Vennet & O. De Jonghe & L. Baele, 2004. "Bank risks and the business cycle," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/264, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  13. Maggi, Bernardo & Rossi, Stefania P.S., 2003. "An Efficiency Analysis of Banking Systems: A Comparison of European and United States Large Commercial Banks Using Different Functional Forms," EIFC - Technology and Finance Working Papers 35, United Nations University, Institute for New Technologies. [Downloadable!]
  14. Manlagnit, Ma. Chelo V. & Lamberte, Mario B., 2004. "Evaluating the Impacts of Competition Policy Reforms on the Efficiency of Philippine Commercial Banks," Discussion Papers DP 2004-46, Philippine Institute for Development Studies. [Downloadable!]
  15. Karl-Hermann Fischer / Christian Pfeil, 2003. "Regulation and Competition in German Banking: An Assessment," CFS Working Paper Series 2003/19, Center for Financial Studies. [Downloadable!]
  16. F. De Graeve & O. De Jonghe & R. Vander Vennet, 2004. "Competition, transmission and bank pricing policies: Evidence from Belgian loan and deposit markets," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/261, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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  17. David Hauner, 2004. "Explaining Efficiency Differences Among Large German and Austrian Banks," IMF Working Papers 04/140, International Monetary Fund. [Downloadable!]
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  18. Mälkönen , Ville, 2004. "The efficiency implications of financial conglomeration," Research Discussion Papers 17/2004, Bank of Finland. [Downloadable!]
  19. Mälkönen , Ville, 2004. "Capital adequacy regulation and financial conglomerates," Research Discussion Papers 10/2004, Bank of Finland. [Downloadable!]
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