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Analysis of banking system efficiency in the European Union

Listed author(s):
  • Dániel Holló

    (Research fellow, Magyar Nemzeti Bank (central bank of Hungary))

  • Márton Nagy


    (Magyar Nemzeti Bank (central bank of Hungary))

Registered author(s):

    In addition to aspects related to financial stability, the cost efficiency gap observed between the banking systems of the old and the new EU member states is also unfavourable from a welfare point of view. In the majority of new member states, banks are likely to price the relatively high rate of cost efficiency losses and the oligopolistic factor linked to insufficient competition in the interest rates. The high loan and low deposit interest rates may prevent, through the volume effect, an upturn in savings and investment propensity, and thereby the implementation of a higher path of economic growth. In the course of our research, we measured variations in efficiency in the member states of the European Union and attempted to explain the reasons for such differences. We evidenced on an empirical basis that the degree of differences between member states and their change through time is significantly determined by the characteristics of the operational environment and the conscious behaviour of management. The conscious behaviour of management is of exclusive relevance in the long term, for the impact of advantages and disadvantages underlying the operational environment is reduced or eliminated through the integration of financial markets and institutions and the establishment of the Single European Market.

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    Article provided by Magyar Nemzeti Bank (Central Bank of Hungary) in its journal MNB Bulletin.

    Volume (Year): 1 (2006)
    Issue (Month): 1 (June)
    Pages: 21-26

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    Handle: RePEc:mnb:bullet:v:1:y:2006:i:1:p:21-26
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    1. Berger, Allen N. & Mester, Loretta J., 1997. "Inside the black box: What explains differences in the efficiencies of financial institutions?," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 895-947, July.
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