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Cost Efficiency of European Cooperative Banks

Author

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  • Matej Kuc

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)

Abstract

This paper investigates the size–efficiency relation of European cooperative banks during the 2006-2015 period. We employ the Stochastic Frontier Analysis in order to obtain inefficiency estimates and its determinants on the set of 183 cooperative banks from 12 European countries. This work extends the existing literature by focusing on shape of size-efficiency relationship and examining also the post-crisis period after the fall of Lehman Brothers in 2008. Our results show that smaller European cooperative banks are significantly more cost efficient than their bigger peers and that the size-efficiency relation is linear. Interestingly, inefficiency remained roughly stable during the whole observation period without any substantial changes, not even on sub-samples of individual countries. These results imply that no significant consolidation of European cooperative banks can be expected in the near future. We conclude that for cooperatives, it is more efficient to remain small in size rather than to expand. From a policy perspective, we recommend regulators to reflect special nature of cooperative banks and allow them to operate at a small scale enabling their efficiency. As a result, we believe that one-size-fits-all regulation is harmful for efficient operations of cooperative banks in Europe.

Suggested Citation

  • Matej Kuc, 2018. "Cost Efficiency of European Cooperative Banks," Working Papers IES 2018/21, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2018.
  • Handle: RePEc:fau:wpaper:wp2018_21
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    File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/5882/lang/cs
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    Cited by:

    1. Ferreira, Cândida, 2021. "Efficiency of European Banks in the Aftermath of the Financial Crisis: A Panel Stochastic Frontier Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 36(1), pages 103-124.
    2. Cândida Ferreira, 2024. "The impact of bank market competition and stability on bank total factor productivity changes: evidence from a panel of European Union banks," Working Papers REM 2024/0315, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    3. Cândida Ferreira, 2020. "Evaluating European Bank Efficiency Using Data Envelopment Analysis: Evidence in the Aftermath of the Recent Financial Crisis," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(4), pages 391-405, November.

    More about this item

    Keywords

    cooperative banking; efficiency; EU; Stochastic Frontier Analysis;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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