The purpose of this paper is twofold. First, it aims to measure and compare the efficiency change of French, German, Italian, Spanish and UK banking groups in a context of financial crisis, over the period 2006-2010; second, it attempts to analyse the internal and environmental determinants of banking groups efficiency.In this paper the efficiency is estimated by a two-stage semi-parametric procedure. In the first stage, we build a common production frontier across countries using the data envelopment analysis (DEA) (Debreu, 1951; Farrell, 1957). To further analyse the efficiency changes over years we use the Malmquist total factor productivity index, based on DEA technique. In the second stage, in order to determine the factors that impact on bank efficiency, the authors perform a bootstrapped truncated regression model with discretionary inputs as independent variables, following Simar and Wilson (2007). Findings – The empirical results show that overall the “large” banking groups are more efficient than the “small” ones. However the Malmquist total factor productivity analysis highlights that during the crisis, in particular between 2007 and 2009, unless Britain, in all countries the small banks show a better cost performance than the larger ones. In general, the authors find a moderate efficiency convergence between countries and between large and small banking groups. As regards the determinants of banking groups efficiency, we find that more liquid, less capitalized banking groups and those more oriented towards the traditional activity of lending are more efficient. Practical implications – The authors find a positive and high statistically significant relationship between both long- and short-term liquidity degree and the cost efficiency of the banking groups. The policy implication of this result is very significative also in the light of the new banking regulation introduced by Basel III that imposes new rules to strengthen the liquidity risk management. Social implications – The authors find that the macroeconomic environment variables have some impact on efficiency: the higher the debt and the GDP per capita of the country the lower the bank’s efficiency. Originality/value – Unlike the most literature on this topic, that usually considers individual banks even if they belong to the same financial conglomerate, the authors analyse only banking groups. In particular, the authors consider all banking groups belonging to the most industrialized European countries in a context of financial crisis and cross-border aggregation movements. Furhermore the authors compare cross-country cost performance of small and large groups, considering the loan loss provisions as an additional input in order to correct the efficiency score for credit risk.
The efficiency of the European banking groups and its determinants
DELL'ATTI, STEFANO;
2015-01-01
Abstract
The purpose of this paper is twofold. First, it aims to measure and compare the efficiency change of French, German, Italian, Spanish and UK banking groups in a context of financial crisis, over the period 2006-2010; second, it attempts to analyse the internal and environmental determinants of banking groups efficiency.In this paper the efficiency is estimated by a two-stage semi-parametric procedure. In the first stage, we build a common production frontier across countries using the data envelopment analysis (DEA) (Debreu, 1951; Farrell, 1957). To further analyse the efficiency changes over years we use the Malmquist total factor productivity index, based on DEA technique. In the second stage, in order to determine the factors that impact on bank efficiency, the authors perform a bootstrapped truncated regression model with discretionary inputs as independent variables, following Simar and Wilson (2007). Findings – The empirical results show that overall the “large” banking groups are more efficient than the “small” ones. However the Malmquist total factor productivity analysis highlights that during the crisis, in particular between 2007 and 2009, unless Britain, in all countries the small banks show a better cost performance than the larger ones. In general, the authors find a moderate efficiency convergence between countries and between large and small banking groups. As regards the determinants of banking groups efficiency, we find that more liquid, less capitalized banking groups and those more oriented towards the traditional activity of lending are more efficient. Practical implications – The authors find a positive and high statistically significant relationship between both long- and short-term liquidity degree and the cost efficiency of the banking groups. The policy implication of this result is very significative also in the light of the new banking regulation introduced by Basel III that imposes new rules to strengthen the liquidity risk management. Social implications – The authors find that the macroeconomic environment variables have some impact on efficiency: the higher the debt and the GDP per capita of the country the lower the bank’s efficiency. Originality/value – Unlike the most literature on this topic, that usually considers individual banks even if they belong to the same financial conglomerate, the authors analyse only banking groups. In particular, the authors consider all banking groups belonging to the most industrialized European countries in a context of financial crisis and cross-border aggregation movements. Furhermore the authors compare cross-country cost performance of small and large groups, considering the loan loss provisions as an additional input in order to correct the efficiency score for credit risk.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
