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Bank performance and convergence during the financial crisis: Evidence from the ‘old’ European Union and Eurozone

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  • Matousek, Roman
  • Rughoo, Aarti
  • Sarantis, Nicholas
  • George Assaf, A.

Abstract

This paper investigates the process of banking integration in the EU15 countries and the Eurozone by testing for convergence in bank efficiency among commercial banks. We use a two-step approach: First we estimate efficiency by applying an innovative methodological approach that treats banks’ non-performing loans as an undesirable output. Second, we apply the Phillips and Sul (2007) panel convergence methodology to assess the convergence process in European banking. Our results indicate an overall decline in efficiency and no evidence of group convergence following the financial crisis. However, we find the presence of club formation with typically weak convergence. The heterogeneity displayed by the transition parameters for the individual countries and the notable decrease in competition levels post 2008 highlight the impact of the financial crisis on the integration process.

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  • Matousek, Roman & Rughoo, Aarti & Sarantis, Nicholas & George Assaf, A., 2015. "Bank performance and convergence during the financial crisis: Evidence from the ‘old’ European Union and Eurozone," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 208-216.
    • Handle: RePEc:eee:jbfina:v:52:y:2015:i:c:p:208-216
    DOI: 10.1016/j.jbankfin.2014.08.012
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    More about this item

    Keywords

    Convergence; European banking; Banking efficiency; Parametric distance function; Phillips and Sul convergence method;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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