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The Effect of Specialisation on Banks' Efficiency: An International Comparison

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  • Jose Pastor
  • Lorenzo Serrano

Abstract

This study analyses the effects of specialisation on the cost efficiency of a set of banking systems of the European Union over the period 1992-1998. Unlike in the established literature in which specialisation differences are not considered, in this paper cost inefficiencies are decomposed into two different components: the first is related to the inefficiency associated with the composition of specialisations in each banking system and the second is related to specific inefficiencies of banks within their specialisation. The results show the existence of high cost inefficiencies. However, the intra-specialisation inefficiencies indicate that the inefficiencies of the European banking systems are much smaller when the effect of productive composition (specialisation) is discounted. This effect is much more evident in those banking systems specialised in the more costly types of business (retail banking) because their composition inefficiency is higher.

Suggested Citation

  • Jose Pastor & Lorenzo Serrano, 2006. "The Effect of Specialisation on Banks' Efficiency: An International Comparison," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(1), pages 125-149.
  • Handle: RePEc:taf:irapec:v:20:y:2006:i:1:p:125-149
    DOI: 10.1080/02692170500362868
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    References listed on IDEAS

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    1. Maudos, Joaquin & Pastor, Jose M. & Perez, Francisco & Quesada, Javier, 2002. "Cost and profit efficiency in European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(1), pages 33-58, February.
    2. Casu, Barbara & Girardone, Claudia & Molyneux, Philip, 2004. "Productivity change in European banking: A comparison of parametric and non-parametric approaches," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2521-2540, October.
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    4. Emili Tortosa-Ausina, 2003. "Bank cost efficiency as distribution dynamics: controlling for specialization is important," Investigaciones Economicas, Fundación SEPI, vol. 27(1), pages 71-96, January.
    5. Mohamed Chaffai & Michel Dietsch & Ana Lozano-Vivas, 2001. "Technological and Environmental Differences in the European Banking Industries," Journal of Financial Services Research, Springer;Western Finance Association, vol. 19(2), pages 147-162, April.
    6. Jose Pastor, 2002. "Credit risk and efficiency in the European banking system: A three-stage analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 12(12), pages 895-911.
    7. Joaquin Maudos & Jose Pastor, 2001. "Cost and profit efficiency in banking: an international comparison of Europe, Japan and the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 8(6), pages 383-387.
    8. Kulasekaran, Sivakumar & Shaffer, Sherrill, 2002. "Cost efficiency among credit card banks," Journal of Economics and Business, Elsevier, vol. 54(6), pages 595-614.
    9. Joaquin Maudos & Jose Pastor & Francisco Perez, 2002. "Competition and efficiency in the Spanish banking sector: the importance of specialization," Applied Financial Economics, Taylor & Francis Journals, vol. 12(7), pages 505-516.
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    Cited by:

    1. Amaya Altuzarra & Jesús Ferreiro & Catalina Gálvez & Carmen Gómez & Ana González & Patricia Peinado & Carlos Rodríguez & Felipe Serrano, 2013. "Studies in Financial Systems No 6 Report on the Spanish Financial System," FESSUD studies fstudy06, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    2. Elisa Fusco & Bernardo Maggi, 2016. "Bank Financial world crisis: Inefficiencies and Responsibilities," DSS Empirical Economics and Econometrics Working Papers Series 2016/2, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome.
    3. Lee, Chi-Chuan & Huang, Tai-Hsin, 2017. "Cost efficiency and technological gap in Western European banks: A stochastic metafrontier analysis," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 161-178.

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    Keywords

    Efficiency; DEA; specialisation; cluster;

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