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Evaluating the German bank merger wave

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Author Info
Koetter, Michael

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Abstract

German banks experienced a merger wave throughout the 1990s. However, the success of bank mergers remains a continuous matter of debate. In this paper we suggest a taxonomy as how to evaluate post-merger performance on the basis of cost efficiency (CE). We categorise mergers a success that fulfill simultaneously two criteria. First, merged institutes must exhibit CE levels above the average of non-merging banks. Second, banks must exhibit CE changes between merger and evaluation year above efficiency changes of non-merging banks. We employ this taxonomy to characterise (successful) mergers in terms of various key-performance and structural indicators and investigate the implications for three important policy issues. Our main conclusions are twofold. First, approximately every second merger is a success. Second, the margin of success is narrow, as the CE differential between merging and non-merging banks is one percentage point. --

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2005,12.

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Date of creation: 2005
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Handle: RePEc:zbw:bubdp2:4267

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Related research
Keywords: Banks mergers; regulation; distress; cost efficiency; Germany;

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Find related papers by JEL classification:
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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References listed on IDEAS
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    Other versions:
  2. William Greene, 2002. "Fixed and Random Effects in Stochastic Frontier Models," Working Papers 02-16, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  3. Berger, Allen N., 2003. "The efficiency effects of a single market for financial services in Europe," European Journal of Operational Research, Elsevier, vol. 150(3), pages 466-481, November. [Downloadable!] (restricted)
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  8. Peristiani, Stavros, 1997. "Do Mergers Improve the X-Efficiency and Scale Efficiency of U.S. Banks? Evidence from the 1980s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 326-37, August.
    Other versions:
  9. Günter Lang, Peter Welzel, 1999. "Mergers Among German Cooperative Banks. A Panel-based Stochastic Frontier Analysis," Working Paper Series B 1999-03, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät. [Downloadable!]
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  10. Altunbas, Yener & Evans, Lynne & Molyneux, Philip, 2001. "Bank Ownership and Efficiency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 926-54, November.
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  13. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre. [Downloadable!]
  14. Koetter, Michael & Bos, Jaap W. B. & Heid, Frank & Kool, Clemens J. M. & Kolari, James W. & Porath, Daniel, 2005. "Accounting for distress in bank mergers," Discussion Paper Series 2: Banking and Financial Studies 2005,09, Deutsche Bundesbank, Research Centre. [Downloadable!]
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  15. 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. [Downloadable!]
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  16. Porath, Daniel, 2004. "Estimating probabilities of default for German savings banks and credit cooperatives," Discussion Paper Series 2: Banking and Financial Studies 2004,06, Deutsche Bundesbank, Research Centre. [Downloadable!]
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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. Marsch, Katharina & Schmieder, Christian & Forster-van Aerssen, Katrin, 2007. "Banking consolidation and small businessfinance : empirical evidence for Germany," Discussion Paper Series 2: Banking and Financial Studies 2007,09, Deutsche Bundesbank, Research Centre. [Downloadable!]
  2. Heid, Frank & Behr, Andreas, 2008. "The success of bank mergers revisited : an assessment based on a matching strategy," Discussion Paper Series 2: Banking and Financial Studies 2008,06, Deutsche Bundesbank, Research Centre. [Downloadable!]
  3. Adrian R. Gourlay & Geetha Ravishankar & Tom Weyman-Jones, 2006. "Non-Parametric Analysis of Efficiency Gains from Bank Mergers in India," Discussion Paper Series 2006_18, Department of Economics, Loughborough University, revised Oct 2006. [Downloadable!]
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