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Efficiency and Cost Differences across Countries in a Unified EuropeanBanking Market

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  • J.A. Bikker

Abstract

This paper seeks to discover the level and spread of bank efficiency in the EU, which in the light of the current and expected increase in competition in Europe is of vital importance for welfare- related public policy toward market structure and conduct. In particular, this study focuses on differences across countries, variously sized banks (reflecting distinct market segments), various banking categories and over time. Two related but diverging dimensions of efficiency are considered: X-efficiency, measuring managerial ability, and cost level differences, reflecting national economic and institutional conditions with respect to supervisory rules, government interference, customer preferences and level of development. The observed large spreads in inefficiencies and cost levels across countries and individual banks indicate that the process of scaling up and rationalisation to be prepared for increased foreign competition, has - for at least part of the banks - only just begun.

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Bibliographic Info

Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 87.

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Length: 29 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:dnb:staffs:87

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Keywords: banks; efficiency; banking category and size effects; international comparison;

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References

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  1. Pastor, JoseManuel & Perez, Francisco & Quesada, Javier, 1997. "Efficiency analysis in banking firms: An international comparison," European Journal of Operational Research, Elsevier, vol. 98(2), pages 395-407, April.
  2. Loretta J. Mester, 1996. "Measuring efficiency at U.S. banks: accounting for heterogeneity is important," Working Papers 96-11, Federal Reserve Bank of Philadelphia.
  3. Joaquin Maudos & Jose Pastor & Lorenzo Seranno, 1999. "Economic integration, efficiency and economic growth: the European Union experience," Applied Economics Letters, Taylor & Francis Journals, vol. 6(6), pages 389-392.
  4. J.A. Bikker & J.M. Groeneveld, 1998. "Competition and Concentration in the EU Banking Industry," Research Series Supervision (discontinued) 8, Netherlands Central Bank, Directorate Supervision.
  5. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
  6. J.A. Bikker & K. Haaf, 2000. "Competition, concentration and their relationship: an empirical analysis of the banking industry," Research Series Supervision (discontinued) 30, Netherlands Central Bank, Directorate Supervision.
  7. Allen, Linda & Rai, Anoop, 1996. "Operational efficiency in banking: An international comparison," Journal of Banking & Finance, Elsevier, vol. 20(4), pages 655-672, May.
  8. Allen N. Berger & Robert DeYoung, 1997. "Problem loans and cost efficiency in commercial banks," Finance and Economics Discussion Series 1997-8, Board of Governors of the Federal Reserve System (U.S.).
  9. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  10. Ana Lozano-Vivas, 1998. "Efficiency and technical change for Spanish banks," Applied Financial Economics, Taylor & Francis Journals, vol. 8(3), pages 289-300.
  11. Jacob A. Bikker, 2001. "Efficiency in the European banking industry: an exploratory analysis to rank contries," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 17.
  12. Allen N. Berger & Loretta J. Mester, 1997. "Inside the black box: what explains differences in the efficiencies of financial institutions?," Working Papers 97-1, Federal Reserve Bank of Philadelphia.
  13. Maudos, Joaquin & Pastor, Jose M. & Perez, Francisco & Quesada, Javier, 2002. "Cost and profit efficiency in European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(1), pages 33-58, February.
  14. J.A. Bikker, 2003. "Efficiency and Cost Differences across Countries in a Unified EuropeanBanking Market," DNB Staff Reports (discontinued) 87, Netherlands Central Bank.
  15. Joaquin Maudos & Jose Pastor, 2001. "Cost and profit efficiency in banking: an international comparison of Europe, Japan and the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 8(6), pages 383-387.
  16. Battese, George E. & Corra, Greg S., 1977. "Estimation Of A Production Frontier Model: With Application To The Pastoral Zone Of Eastern Australia," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 21(03), December.
  17. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
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Citations

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Cited by:
  1. Mark Schonewille, 2004. "Qualitative Efficiency Assessment of Markets: An Institutional Approach to Training," HEW 0405006, EconWPA.
  2. Bos, J.W.B. & Kool, C.J.M., 2006. "Bank efficiency: The role of bank strategy and local market conditions," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1953-1974, July.
  3. 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, 8.
  4. 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.
  5. Jacob Bikker & Jaap Bos, 2004. "Trends in Competition and Profitability in the Banking Industry: A Basic Framework," DNB Working Papers 018, Netherlands Central Bank, Research Department.
  6. J.A. Bikker, 2001. "Efficiency and cost differences across countries in a unified European banking market," Research Series Supervision (discontinued) 34, Netherlands Central Bank, Directorate Supervision.
  7. 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.
  8. Fitzpatrick, Trevor & McQuinn, Kieran, 2004. "Cost Efficiency in UK and Irish Credit Institutions," Research Technical Papers 3/RT/04, Central Bank of Ireland.
  9. Mamatzakis, E & Koutsomanoli, A, 2009. "European Banking Integration under a Quadratic Loss Function," MPRA Paper 19379, University Library of Munich, Germany.
  10. Bos, Jaap W. B. & Schmiedel, Heiko, 2006. "Is there a single frontier in a single European banking market?," Working Paper Series 0701, European Central Bank.
  11. Christian E. Weller & Ghazal Zulfiqar, 2013. "Financial Market Diversity and Macroeconomic Stability," Working Papers wp332, Political Economy Research Institute, University of Massachusetts at Amherst.
  12. 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.
  13. Mamatzakis, E & Koutsomanoli, A, 2009. "Risk in the EU banking industry and efficiency under quantile analysis," MPRA Paper 22492, University Library of Munich, Germany.

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