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Reallocating Profits in Restructuring Industries: Evidence from European and US Banking

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Author Info
Jaap W.B. Bos ()
P.C. van Santen ()
P. Schilp ()

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Abstract

We examine the reallocation of profits in the European and US banking sectors in the period of 1995 to 2004. Specifically, we ask whether the restructuring of both industries has contributed to an efficient reallocation of assets. Using a revised decomposition framework, we find that US banks are more flexible in the reallocation of profits than their European counterparts. In the US, efficient banks that appropriate assets decrease industry profitability, as expected in a market characterized by a sufficiently high level of competition. In addition, economies of scale are exploited more in the US than in Europe. Regulatory reforms in the EU, in particular in response to the current crisis, should therefore foster a more closely integrated European market.

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Paper provided by Utrecht School of Economics in its series Working Papers with number 09-12.

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Length: 16 pages
Date of creation: May 2009
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Handle: RePEc:use:tkiwps:0912

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Related research
Keywords: market structure; efficiency; restructuring; stochastic frontier; banking;

Find related papers by JEL classification:
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models

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