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Evaluating the German Bank Merger Wave

  • M. Koetter

German banks experienced a merger wave throughout the 1990’s. However,the success of bank mergers remains a continuous matter of debate.In this paper we suggest a taxonomy as how to evaluate post-merger performanceon the basis of cost efficiency (CE). We categorise mergers a successthat fulfill simultaneously two criteria. First, merged institutes must exhibitCE levels above the average of non-merging banks. Second, banks mustexhibit CE changes between merger and evaluation year above efficiencychanges of non-merging banks. We employ this taxonomy to characterise(successful) mergers in terms of various key-performance and structural indicatorsand investigate the implications for four prominent policy issuesparticular to German banking. Our main conclusions are threefold. First,roughly every second merger is a success. Second, the margin of success isnarrow, as the CE difference amounts to approximately 1 percentage point.Third, it takes around seven years after a transaction until maximum meanCE differentials materialise.

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Paper provided by Utrecht School of Economics in its series Working Papers with number 05-16.

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Date of creation: 2005
Date of revision:
Handle: RePEc:use:tkiwps:0516
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  1. Koetter, Michael & Bos, Jaap W. B. & Heid, Frank & Kool, Clemens J. M. & Kolari, James W. & Porath, Daniel, 2005. "Accounting for distress in bank mergers," Discussion Paper Series 2: Banking and Financial Studies 2005,09, Deutsche Bundesbank, Research Centre.
  2. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
  3. Peristiani, Stavros, 1997. "Do Mergers Improve the X-Efficiency and Scale Efficiency of U.S. Banks? Evidence from the 1980s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 326-37, August.
  4. Szilagyi, Jan & Hilscher, Jens & Campbell, John, 2008. "In Search of Distress Risk," Scholarly Articles 3199070, Harvard University Department of Economics.
  5. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October.
  6. J.A. Bikker & K. Haaf, 2001. "Competition, Concentration and their Relationship: an EmpiricalAnalysis of the Banking Industry," DNB Staff Reports (discontinued) 68, Netherlands Central Bank.
  7. Günter Lang, Peter Welzel, 1999. "Mergers Among German Cooperative Banks. A Panel-based Stochastic Frontier Analysis," Working Paper Series B 1999-03, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät.
  8. Porath, Daniel, 2004. "Estimating probabilities of default for German savings banks and credit cooperatives," Discussion Paper Series 2: Banking and Financial Studies 2004,06, Deutsche Bundesbank, Research Centre.
  9. Falko Fecht & Kevin Huang, 2004. "Financial intermediaries, markets, and growth," Econometric Society 2004 North American Summer Meetings 419, Econometric Society.
  10. Günter Lang & Peter Welzel, 1998. "Technology and Cost Efficiency in Universal Banking A “Thick Frontier”-Analysis of the German Banking Industry," Journal of Productivity Analysis, Springer, vol. 10(1), pages 63-84, July.
  11. 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.
  12. Willam Greene, 2005. "Fixed and Random Effects in Stochastic Frontier Models," Journal of Productivity Analysis, Springer, vol. 23(1), pages 7-32, 01.
  13. Slacalek, Jirka & Fritsche, Ulrich & Dovern, Jonas & Döpke, Jörg, 2005. "European inflation expectations dynamics," Discussion Paper Series 1: Economic Studies 2005,37, Deutsche Bundesbank, Research Centre.
  14. 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.
  15. Döpke, Jörg & Funke, Michael & Holly, Sean & Weber, Sebastian, 2005. "The cross-sectional dynamics of German business cycles: a bird's eye view," Discussion Paper Series 1: Economic Studies 2005,23, Deutsche Bundesbank, Research Centre.
  16. Hempell, Hannah S., 2002. "Testing for Competition Among German Banks," Discussion Paper Series 1: Economic Studies 2002,04, Deutsche Bundesbank, Research Centre.
  17. Jaap W. B. Bos & James W. Kolari, 2005. "Large Bank Efficiency in Europe and the United States: Are There Economic Motivations for Geographic Expansion in Financial Services?," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1555-1592, July.
  18. Altunbas, Yener & Evans, Lynne & Molyneux, Philip, 2001. "Bank Ownership and Efficiency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 926-54, November.
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