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Efficiency and Cost Differences across Countries in a Unified EuropeanBanking Market

This paper seeks to discover the level and spread of bank efficiency in the EU, which in the light of the current and expected increase in competition in Europe is of vital importance for welfare- related public policy toward market structure and conduct. In particular, this study focuses on differences across countries, variously sized banks (reflecting distinct market segments), various banking categories and over time. Two related but diverging dimensions of efficiency are considered: X-efficiency, measuring managerial ability, and cost level differences, reflecting national economic and institutional conditions with respect to supervisory rules, government interference, customer preferences and level of development. The observed large spreads in inefficiencies and cost levels across countries and individual banks indicate that the process of scaling up and rationalisation to be prepared for increased foreign competition, has - for at least part of the banks - only just begun.

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File URL: http://www.dnb.nl/binaries/sr087_tcm46-146864.pdf
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Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 87.

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Length: 29 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:dnb:staffs:87
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Web page: http://www.dnb.nl/en/

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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.
  2. 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.
  3. J.A. Bikker & J.M. Groeneveld, 1998. "Competition and Concentration in the EU Banking Industry," Research Series Supervision (discontinued) 8, Netherlands Central Bank, Directorate Supervision.
  4. Ana Lozano-Vivas, 1998. "Efficiency and technical change for Spanish banks," Applied Financial Economics, Taylor & Francis Journals, vol. 8(3), pages 289-300.
  5. 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.
  6. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of Financial Institutions: International Survey and Directions for Future Research," Center for Financial Institutions Working Papers 97-05, Wharton School Center for Financial Institutions, University of Pennsylvania.
  7. Allen, Linda & Rai, Anoop, 1996. "Operational efficiency in banking: An international comparison," Journal of Banking & Finance, Elsevier, vol. 20(4), pages 655-672, May.
  8. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  9. Loretta J. Mester, 1996. "Measuring efficiency at U.S. banks: accounting for heterogeneity is important," Working Papers 96-11, Federal Reserve Bank of Philadelphia.
  10. J.A. Bikker, 2003. "Efficiency and Cost Differences across Countries in a Unified EuropeanBanking Market," DNB Staff Reports (discontinued) 87, Netherlands Central Bank.
  11. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  12. J.A. Bikker & K. Haaf, 2000. "Competition, concentration and their relationship: an empirical analysis of the banking industry," Research Series Supervision (discontinued) 30, Netherlands Central Bank, Directorate Supervision.
  13. 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.
  14. Battese, George E. & Corra, Greg S., 1977. "Estimation Of A Production Frontier Model: With Application To The Pastoral Zone Of Eastern Australia," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 21(03), December.
  15. Allen N. Berger & Robert DeYoung, 1995. "Problem Loans and Cost Efficiency in Commercial Banks," Center for Financial Institutions Working Papers 96-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
  16. Francisco Pérez García & Javier Quesada Ibañez & José Manuel Pastor Monsálvez, 1995. "Efficiency Analysis In Banking Firms: An International Comparison," Working Papers. Serie EC 1995-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  17. Joaquin Maudos & Jose Pastor & Lorenzo Seranno, 1999. "Economic integration, efficiency and economic growth: the European Union experience," Applied Economics Letters, Taylor & Francis Journals, vol. 6(6), pages 389-392.
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