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A Comparative Study of Efficiency in European Banking

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Author Info
Barbara Casu
Philip Molyneux

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Abstract

The structure of European banking markets has substantially changed over the past decade, partially as a result of the creation of the Single Internal Market. The process of integration and accompanying deregulation has embodied an incentive for bank management to focus on improving efficiency, especially given the more competitive banking environment. In this paper, employing the non-parametric DEA approach, we investigate whether the productive efficiency of European banking systems has improved and converged towards a common European frontier between 1993 and 1997, following the process of EU legislative harmonisation. We also examine the determinants of European bank efficiency using a Tobit regression model approach. We then extend the established literature on the determinants bank efficiency by taking into account the problem of the inherent dependency of DEA efficiency scores when used in regression analysis. To overcome the dependency problem a bootstrapping technique is applied. Overall, the results suggest that since the EU's Single Market Programme there has been a small improvement in bank efficiency levels, although there is little evidence to suggest that these have converged. Efficiency differences across European banking markets appear to be mainly determined by country-specific factors.

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Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 00-17.

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Date of creation: Feb 2000
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Handle: RePEc:wop:pennin:00-17

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Keywords: Efficiency DEA Bootstrap European Banks.

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mester, Loretta J., 1996. "A study of bank efficiency taking into account risk-preferences," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1025-1045, July. [Downloadable!] (restricted)
  2. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series 1997-11, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  3. Berg, Sigbjorn Atle & Forsund, Finn R. & Hjalmarsson, Lennart & Suominen, Matti, 1993. "Banking efficiency in the Nordic countries," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 371-388, April. [Downloadable!] (restricted)
  4. S. Carbo & E. P. M. Gardener & J. Williams, 2003. "A note on technical change in banking: the case of European savings banks," Applied Economics, Taylor and Francis Journals, vol. 35(6), pages 705-719, January. [Downloadable!] (restricted)
  5. Mei Xue & Patrick T. Harker, 1999. "Overcoming the Inherent Dependency of DEA Efficiency Scores: A Bootstrap Approach," Center for Financial Institutions Working Papers 99-17, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  6. Altunbas, Y. & Gardener, E. P. M. & Molyneux, P. & Moore, B., 2001. "Efficiency in European banking," European Economic Review, Elsevier, vol. 45(10), pages 1931-1955, December. [Downloadable!] (restricted)
  7. Simar, L. & Wilson, P.W., 1995. "Sensitivity Analysis of Efficiency Scores: How to Bootstrap in Non-parametric Frontier Models," Papers 9543a, Catholique de Louvain - Center for Operations Research and Economics.
  8. Berger, Allen N. & Hancock, Diana & Humphrey, David B., 1993. "Bank efficiency derived from the profit function," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 317-347, April. [Downloadable!] (restricted)
  9. Maudos, Joaquin & Pastor, Jose M, 2001. "Cost and Profit Efficiency in Banking: An International Comparison of Europe, Japan and the USA," Applied Economics Letters, Taylor and Francis Journals, vol. 8(6), pages 383-87, June. [Downloadable!] (restricted)
  10. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andreas Wutz, 2002. "Wie beeinflusst das Umfeld einer Bank die Effizienz? - Eine DEA-Analyse fuer die Bayerischen Genossenschaftsbanken," Discussion Paper Series 215, Universitaet Augsburg, Institute for Economics. [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. Ali Ataullah & Hang Le, 2006. "Economic reforms and bank efficiency in developing countries: the case of the Indian banking industry," Applied Financial Economics, Taylor and Francis Journals, vol. 16(9), pages 653-663, June. [Downloadable!] (restricted)
  4. Andreas Wutz, 2000. "Einfluss der Modellierung auf die Effizienz der Bank - Produktions- und Intermediationsansatz im Vergleich," Discussion Paper Series 198, Universitaet Augsburg, Institute for Economics. [Downloadable!]
  5. Paul Schure & Dermot O'Brien & Rien Wagenvoort, 2002. "The Efficiency and the Conduct of European Banks: Developments after 1992," EUI-RSCAS Working Papers 60, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS). [Downloadable!]
    Other versions:
  6. Franz R. Hahn, 2004. "Measuring Performance. A Multiple-Stage Approach," WIFO Working Papers 228, WIFO. [Downloadable!]
  7. Carlos Pestana Barros & Nicolas Peypoch & Jonathan Williams, 2006. "A Note on Productivity Change in European Co-operative Banks: The Luenberger Indicator Approach," Working Papers 2006/36, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
  8. Don U.A. Galagedera & Piyadasa Edirisuriya, 2004. "Performance of Indian commercial banks (1995-2002): an application of data envelopment analysis and Malmquist productivity index," Finance 0408006, EconWPA. [Downloadable!]
  9. Sophocles N. Brissimis & Matthaios D. Delis & Efthymios G. Tsionas, 2006. "Technical and Allocative Efficiency in European Banking," Working Papers 46, Bank of Greece. [Downloadable!]
  10. Franz R. Hahn, 2005. "Environmental Determinants of Banking Efficiency in Austria," WIFO Working Papers 245, WIFO. [Downloadable!]
  11. Syed Fawad Ali Rizvi, 2001. "Post-liberalisation Efficiency and Productivity of the Banking Sector in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 605-632. [Downloadable!]
  12. Franz R. Hahn, 2004. "Mergers and Acquisitions in the Austrian Banking Sector. A Performance Analysis," WIFO Working Papers 230, WIFO. [Downloadable!]
  13. Donsyah Yudistira, 2004. "Efficiency of Islamic Banks: an Empirical Analysis of 18 Banks," Finance 0406007, EconWPA. [Downloadable!]
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