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The impact of the global financial crisis on the efficiency of Australian banks

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  • Moradi-Motlagh, Amir
  • Babacan, Alperhan

Abstract

The objective of this study is to measure the efficiency levels of major Australian banks and some regional banks before, during and after the Global Financial Crisis (GFC) by examining their pure technical and scale efficiencies obtained from the bootstrap Data Envelopment Analysis (DEA). The adopted bootstrap approach enables us to conduct statistical inferences regarding scale efficiency estimates of individual banks. We visualize bootstrapped results using an efficiency matrix to present the results of confidence intervals of pure technical and scale efficiency estimates. This novel approach facilitates efficiency comparison across the chosen sample banks for which consistent input and output data were available. This paper provides a useful benchmarking framework for individual banks to assess and identify their likely sources of technical inefficiency. The empirical results reveal that the global financial crisis had an adverse effect on the pure technical efficiency of Australian banks. In addition, the bootstrapped results indicate that small banks mostly operate in the region of increasing returns to scale while medium-sized banks are scale efficient. The results support the view that only smaller banks can enhance their efficiency from possible future mergers with other smaller-medium size banks. Any mergers involving the Big 4 banks are likely to lower the overall efficiency of the banking system and lead to anti-competitive behavior.

Suggested Citation

  • Moradi-Motlagh, Amir & Babacan, Alperhan, 2015. "The impact of the global financial crisis on the efficiency of Australian banks," Economic Modelling, Elsevier, vol. 46(C), pages 397-406.
  • Handle: RePEc:eee:ecmode:v:46:y:2015:i:c:p:397-406
    DOI: 10.1016/j.econmod.2014.12.044
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