Financial Centre Productivity and Innovation prior to and during the Financial Crisis

This paper assesses and tests the response of banks operating in the financial centres to the financial crisis in terms of the actual productivity change and its main components: the pure efficiency change, scale efficiency change and technological change (innovation). The heterogeneity in the organizational form and the size that exists among banks have been accounted for with the Aggregated Malmquist Productivity Index and the bootstrap techniques extended to this index. Our findings indicate that both the branch and subsidiary banks respond to the financial crisis with productivity improvements, and in both cases, this improvement is driven mostly by the positive technical change. However, the branch banks outperform the subsidiary banks. In addition, for the three categories of big, medium and small banks, we find a positive productivity reaction to the crisis, driven by the technical change. However, as small banks not only respond to the financial crisis with improvements in the technical change but also in the scale-efficiency change, they seem to reach a higher productivity growth, compared with larger banks, as a response to the financial crisis.