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The effect of building society demutualisation on levels of efficiency at large UK commercial banks

  • Robert Webb
  • Cormac Bryce
  • Duncan Watson
Registered author(s):

    Purpose – This paper aims to investigate the effect of UK building society demutualisation on levels of efficiency at the largest five commercial banks in the UK. Design/methodology/approach – This research utilises data envelopment analysis (DEA) within a rarely adopted windows framework to analyse efficiency. The study also incorporates a novel risk proxy in the profit-orientated approach to determine DEA input/output which proves a useful innovation to the methodology. Findings – The overall aggregate results suggest that converting building societies outperformed their bank counterparts in all areas of efficiency and that scale efficiency dominates pure technical efficiency. Interestingly, the results also indicate that the level at which institutions continue to find economies of scale had increased when compared to previous research. Originality/value – The period of building society demutualisation offers an empirical opportunity to examine deregulation upon market participants. It is felt that this study offers academics, regulators and participants within the financial services environment an insight into the efficiency impact of deregulation.

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    Article provided by Emerald Group Publishing in its journal Journal of Financial Regulation and Compliance.

    Volume (Year): 18 (2010)
    Issue (Month): 4 (November)
    Pages: 333-355

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    Handle: RePEc:eme:jfrcpp:v:18:y:2010:i:4:p:333-355
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    1. 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.).
    2. Simper Richard, 1998. "Economies of Cost in the UK Building Society Industry," The Service Industries Journal, Taylor & Francis Journals, vol. 18(4), pages 109-125, October.
    3. Valnek, Tomas, 1999. "The comparative performance of mutual building societies and stock retail banks," Journal of Banking & Finance, Elsevier, vol. 23(6), pages 925-938, June.
    4. Luc Laeven & Giovanni Majnoni, 2002. "Loan loss provisioning and economic slowdowns: too much too late?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
    5. 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.
    6. Rasmusen, Eric, 1988. "Mutual Banks and Stock Banks," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 395-421, October.
    7. Maudos, Joaquin & Fernandez de Guevara, Juan, 2003. "Factors Explaining the Interest Margin in the Banking Sectors of the European Union," MPRA Paper 15252, University Library of Munich, Germany.
    8. K. Kosmidou & F. Pasiouras & M. Doumpos & C. Zopounidis, 2006. "Assessing performance factors in the UK banking sector: A multicriteria methodology," Central European Journal of Operations Research, Springer, vol. 14(1), pages 25-44, February.
    9. Drake, Leigh & Simper, Richard, 2002. "Economies of scale in UK building societies: A re-appraisal using an entry/exit model," Journal of Banking & Finance, Elsevier, vol. 26(12), pages 2365-2382.
    10. Drake, Leigh & Simper, R., 2003. "The measurement of English and Welsh police force efficiency: A comparison of distance function models," European Journal of Operational Research, Elsevier, vol. 147(1), pages 165-186, May.
    11. Altunbas, Yener & Liu, Ming-Hau & Molyneux, Philip & Seth, Rama, 2000. "Efficiency and risk in Japanese banking," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1605-1628, October.
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    13. Corvoisier, Sandrine & Gropp, Reint, 2002. "Bank concentration and retail interest rates," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2155-2189, November.
    14. Robert Webb, 2003. "Levels of efficiency in UK retail banks: a DEA window analysis," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 305-322.
    15. Gardener Edward & Howcroft Barry & Williams Jonathan, 1999. "The New Retail Banking Revolution," The Service Industries Journal, Taylor & Francis Journals, vol. 19(2), pages 83-100, April.
    16. Drake, Leigh & Hall, Maximilian J. B., 2003. "Efficiency in Japanese banking: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 891-917, May.
    17. Leigh M. Drake & Maximilian J. B. Hall & Richard Simper, 2005. "The Impact of Macroeconomic and Regulatory Factors on Bank Efficiency: A Non-Parametric Analysis of Hong Kong's Banking System," Working Papers 012005, Hong Kong Institute for Monetary Research.
    18. Piyu Yue, 1992. "Data envelopment analysis and commercial bank performance: a primer with applications to Missouri banks," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-45.
    19. Leigh Drake, 2001. "Efficiency and productivity change in UK banking," Applied Financial Economics, Taylor & Francis Journals, vol. 11(5), pages 557-571.
    20. Hartman, Thomas E. & Storbeck, James E., 1996. "Input congestion in loan operations," International Journal of Production Economics, Elsevier, vol. 46(1), pages 413-421, December.
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