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Regional Bank Efficiency and its Effect on Regional Growth in “Normal” and “Bad” Times

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  • Ansgar Belke
  • Ulrich Haskamp
  • Ralph Setzer

Abstract

The financial crisis affected regions in Europe in a different magnitude. This is why we examine whether regions which incorporate banks with a higher intermediation quality grow faster in “normal” times and are more resilient in “bad” ones. For this purpose, we measure the intermediation quality of a bank by estimating its profit and cost efficiency while taking the changing banking environment after the financial crisis into account. Next, we aggregate the efficiencies of all banks within a NUTS 2 region to obtain a regional proxy for financial quality in twelve European countries. Our results show that relatively more profit efficient banks foster growth in their region. The link between financial quality and growth is valid in “normal” and in “bad” times. These results provide evidence to the importance of swiftly restoring bank pro_tability in euro area crisis countries through addressing high nonperforming loans ratios and decisive actions on bank recapitalization.

Suggested Citation

  • Ansgar Belke & Ulrich Haskamp & Ralph Setzer, 2015. "Regional Bank Efficiency and its Effect on Regional Growth in “Normal” and “Bad” Times," ROME Working Papers 201507, ROME Network.
  • Handle: RePEc:rmn:wpaper:201507
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    Cited by:

    1. repec:spr:opsear:v:55:y:2018:i:3:d:10.1007_s12597-018-0332-2 is not listed on IDEAS
    2. Ulrich Haskamp, 2018. "Spillovers of banking regulation: the effect of the German bank levy on the lending rates of regional banks and their local competitors," International Economics and Economic Policy, Springer, vol. 15(2), pages 449-466, April.
    3. repec:pal:jorsoc:v:68:y:2017:i:11:d:10.1057_s41274-017-0180-0 is not listed on IDEAS
    4. Haskamp, Ulrich, 2017. "Improving the forecasts of European regional banks' profitability with machine learning algorithms," Ruhr Economic Papers 705, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Boubacar Diallo, 2016. "Financial dependence and growth during crises: when does bank efficiency really matter?," Economics Bulletin, AccessEcon, vol. 36(4), pages 2491-2505.
    6. repec:ris:utmsje:0206 is not listed on IDEAS
    7. Masuch, Klaus & Anderton, Robert & Setzer, Ralph & Benalal, Nicholai, 2018. "Structural policies in the euro area," Occasional Paper Series 210, European Central Bank.
    8. repec:gam:jsusta:v:10:y:2018:i:9:p:3271-:d:169557 is not listed on IDEAS
    9. repec:gam:jijfss:v:6:y:2018:i:2:p:37-:d:138190 is not listed on IDEAS
    10. Luintel, Kul B. & Selim, Sheikh & Bajracharya, Pushkar, 2017. "Liberalization, bankers’ motivation and productivity: A simple model with an application," Economic Modelling, Elsevier, vol. 61(C), pages 102-112.
    11. repec:scn:financ:y:2017:i:4:p:40-53 is not listed on IDEAS
    12. repec:eee:ecmode:v:68:y:2018:i:c:p:11-22 is not listed on IDEAS

    More about this item

    Keywords

    bank efficiency; financial development; regional growth; Europe;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E16 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Social Accounting Matrix
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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