A note on technical change in banking: the case of European savings banks
Using a Fourier flexible form cost function methodology, technical progress is estimated for a large sample of European savings banks between 1989 and 1997. On average, technical progress has reduced savings banks total costs by around 3.4% per annum. Since the European savings banks industry is characterized by technology sharing arrangements, a test is made to determine whether technical change is positively related to bank size. The estimates identify two important features of how technical progress has effected European savings banks' costs. First, costs reductions arising from technical change diminish between 1989 and 1997. Second, technical progress has a bigger impact on reducing large savings banks' costs, chiefly because of its influence on input prices, that is, non-neutral technical change increases systematically with size. This suggests that large savings banks have greater flexibility in reducing costs in response to technical progress, implying that technology sharing arrangements have not led to uniform reductions in banks' total cost. Rather, large savings banks are market leaders and small banks market followers. Since larger banks benefit more from technical progress this may be an important factor promoting consolidation in the European savings banks industry.
Volume (Year): 35 (2003)
Issue (Month): 6 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAEC20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAEC20|
References listed on IDEAS
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.:
- Lang, Gunter & Welzel, Peter, 1996. "Efficiency and technical progress in banking Empirical results for a panel of German cooperative banks," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1003-1023, July.
- Gallant, A. Ronald, 1981. "On the bias in flexible functional forms and an essentially unbiased form : The fourier flexible form," Journal of Econometrics, Elsevier, vol. 15(2), pages 211-245, February.
- S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
- Allen N. Berger & Loretta J. Mester, 1997.
"Inside the black box: what explains differences in the efficiencies of financial institutions?,"
Finance and Economics Discussion Series
1997-10, Board of Governors of the Federal Reserve System (U.S.).
- 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.
- Allen N. Berger & Loretta J. Mester, 1997. "Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?," Center for Financial Institutions Working Papers 97-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Allen N. Berger & Loretta J. Mester, 1997. "Inside the black box: what explains differences in the efficiencies of financial institutions?," Working Papers 97-1, Federal Reserve Bank of Philadelphia.
- Baltagi, Badi H & Griffin, James M, 1988. "A General Index of Technical Change," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 20-41, February.
- Hunter, William C & Timme, Stephen G, 1991. "Technological Change in Large U.S. Commercial Banks," The Journal of Business, University of Chicago Press, vol. 64(3), pages 339-62, July.
- William R. White, 1998. "The coming transformation of continental european banking?," BIS Working Papers 54, Bank for International Settlements.
- Chalfant, James A. & Gallant, A. Ronald, 1985. "Estimating substitution elasticities with the Fourier cost function : Some Monte Carlo results," Journal of Econometrics, Elsevier, vol. 28(2), pages 205-222, May.
- Kenneth Spong & Richard J. Sullivan & Robert DeYoung, 1995. "What makes a bank efficient? : a look at financial characteristics and management and ownership structure," Financial Industry Perspectives, Federal Reserve Bank of Kansas City, issue Dec, pages 1-19.
- Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1989.
"Production Frontiers With Cross-Sectinal And Time-Series Variation In Efficiency Levels,"
89-18, C.V. Starr Center for Applied Economics, New York University.
- Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200.
- McKillop, Donal G. & Glass, J. Colin & Morikawa, Yukio, 1996. "The composite cost function and efficiency in giant Japanese banks," Journal of Banking & Finance, Elsevier, vol. 20(10), pages 1651-1671, December.
- De Bandt, Olivier & Davis, E. Philip, 2000. "Competition, contestability and market structure in European banking sectors on the eve of EMU," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 1045-1066, June.
- Elbadawi, Ibrahim & Gallant, A Ronald & Souza, Geraldo, 1983. "An Elasticity Can Be Estimated Consistently without A Priori Knowledge of Functional Form," Econometrica, Econometric Society, vol. 51(6), pages 1731-51, November.
- Gallant, A. Ronald & Souza, Geraldo, 1991. "On the asymptotic normality of Fourier flexible form estimates," Journal of Econometrics, Elsevier, vol. 50(3), pages 329-353, December.
- Altunbas, Yener & Goddard, John & Molyneux, Phil, 1999. "Technical change in banking," Economics Letters, Elsevier, vol. 64(2), pages 215-221, August.
- Gallant, A. Ronald, 1982. "Unbiased determination of production technologies," Journal of Econometrics, Elsevier, vol. 20(2), pages 285-323, November.
- Mester, Loretta J., 1996. "A study of bank efficiency taking into account risk-preferences," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1025-1045, July.
When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:35:y:2003:i:6:p:705-719. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.