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Efficiency in the European banking industry: an exploratory analysis to rank countries

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  • J.A. Bikker

Abstract

The introduction of the Euro in EMU is enhancing international competition between European banks, forcing banks to become more efficient. Which countries will be effected the most? The stochastic cost frontier approach is used to estimate the X-efficiency of the European banks, and a multiproduct translog cost function to compare cost levels. On average, Spanish, French and Italian banks appear to be less efficient than those in Germany, the Netherlands and the UK, while banks in Luxembourg, Belgium and Switzerland are the most efficient. Large differences in average X-inefficiencies and cost-levels between countries exist, Spain being around 40% above and Luxembourg about 35% below the European average. Large-scale consolidation and rationalisation of the banking industry are expected. Furthermore, the analysis provides evidence that X-efficiency estimates from single-country studies, as often found in the literature, can be very misleading.

Suggested Citation

  • J.A. Bikker, 1999. "Efficiency in the European banking industry: an exploratory analysis to rank countries," Research Series Supervision (discontinued) 18, Netherlands Central Bank, Directorate Supervision.
  • Handle: RePEc:dnb:ressup:18
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    Cited by:

    1. Jacob Bikker & Janko Gorter, 2008. "Performance of the Dutch non-life insurance industry: competition, efficiency and focus," DNB Working Papers 164, Netherlands Central Bank, Research Department.
    2. M. Demertzis & N. Viegi, 2001. "Aiming for the Bull's Eye: Inflation Targeting under Uncertainty," WO Research Memoranda (discontinued) 671, Netherlands Central Bank, Research Department.
    3. 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.
    4. P J A van Els & W A van den End & M C J van Rooij, 2005. "Financial behaviour of Dutch households: analysis of the DNB Household Survey 2003," BIS Papers chapters,in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 21-39 Bank for International Settlements.
    5. Alexis Penot, 2002. "Appréciations et conséquences possibles de l'hétérogénéité structurelle de la zone euro," Revue d'Économie Financière, Programme National Persée, vol. 65(1), pages 153-175.
    6. Jonker, Nicole & Folkertsma, Carsten & Blijenberg, Harry, 2004. "An empirical analysis of price setting behaviour in the Netherlands in the period 1998-2003 using micro data," Working Paper Series 413, European Central Bank.
    7. Mojon, Benoît & Valla, Natacha & de Bondt, Gabe, 2005. "Term structure and the sluggishness of retail bank interest rates in euro area countries," Working Paper Series 518, European Central Bank.
    8. Jaap Bikker & Sandra Wesseling, 2003. "Intermediation,integration and internationalisation: a survey on banking in Europe," DNB Occasional Studies 103, Netherlands Central Bank, Research Department.
    9. Bertrand Rime & Kevin J. Stiroh, 2001. "The Performance of Universal Banks: Evidence from Switzerland," Working Papers 01.03, Swiss National Bank, Study Center Gerzensee.
    10. Bank for International Settlements, 2006. "The banking system in emerging economies: how much progress has been made?," BIS Papers, Bank for International Settlements, number 28, June - Se.
    11. Jacob A. Bikker & Jaap W.B. Bos, 2005. "Trends in Competition and Profitability in the Banking Industry: A Basic Framework," SUERF Studies, SUERF - The European Money and Finance Forum, number 2005/2 edited by Morten Balling, August.
    12. Khan, Habib Hussain & Ahmad, Rubi Binti & Gee, Chan Sok, 2016. "Bank competition and monetary policy transmission through the bank lending channel: Evidence from ASEAN," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 19-39.
    13. Emili Tortosa-Ausina, 2002. "Cost Efficiency and Product Mix Clusters across the Spanish Banking Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(2), pages 163-181, March.
    14. Martin, Daniel & Pierrard, Olivier, 2014. "On-the-job search and cyclical unemployment: Crowding out vs. vacancy effects," Journal of Economic Dynamics and Control, Elsevier, pages 235-250.
    15. repec:eee:ecofin:v:42:y:2017:i:c:p:531-545 is not listed on IDEAS
    16. Rime, Bertrand & Stiroh, Kevin J., 2003. "The performance of universal banks: Evidence from Switzerland," Journal of Banking & Finance, Elsevier, vol. 27(11), pages 2121-2150, November.
    17. Dániel Holló & Márton Nagy, 2006. "Bank Efficiency in the Enlarged European Union," BIS Papers chapters,in: Bank for International Settlements (ed.), The banking system in emerging economies: how much progress has been made?, volume 28, pages 217-35 Bank for International Settlements.
    18. J.A. Bikker, 2001. "Efficiency and cost differences across countries in a unified European banking market," Research Series Supervision (discontinued) 34, Netherlands Central Bank, Directorate Supervision.
    19. G. Russo & W.H.J. Hassink, 2005. "The Part-Time Wage Penalty: a Career Perspective," Working Papers 01-01, Utrecht School of Economics.
    20. Berger, Allen N., 2003. "The efficiency effects of a single market for financial services in Europe," European Journal of Operational Research, Elsevier, vol. 150(3), pages 466-481, November.
    21. L.W. Punt & M.C.J. van Rooij, 1999. "The profit-structure relationship, efficiency and mergers in the European banking industry: an empirical assessment," WO Research Memoranda (discontinued) 604, Netherlands Central Bank, Research Department.
    22. Jacob Bikker & Janko Gorter, 2008. "Performance of the Dutch non-life insurance industry: competition, efficiency and focus," DNB Working Papers 164, Netherlands Central Bank, Research Department.
    23. Daniel Stavarek, 2003. "Banking Efficiency in Visegrad Countries Before Joining the European Union," Finance 0312010, EconWPA.

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