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The productivity growth of euro area banks

Author

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  • Ivan Huljak

    (Croatian National Bank, Trg hrvatskih velikana 3)

  • Reiner Martin

    (Joint Vienna Institute, Mariahilferstrasse 97)

  • Diego Moccero

    (European Central Bank, Sonnemannstrasse 22)

Abstract

We study the performance of the banking system in the Eurozone over the period 2006–2017 as measured by total factor productivity growth (TFPG) and its components. We find that Total Factor Productivity growth for the median euro area bank decreased from around 2.6% in 2007 to below 1.7% in 2017, driven mainly by a decline in technical efficiency. In addition, we control for unobserved heterogeneity across banks and disentangle persistent and time-varying inefficiency in the banking sector. This modelling choice is important to avoid distorted and biased inefficiency estimates. We find that cost efficiency in the euro area banking sector amounted to around 84% on average over the 2006 to 2017 period. The largest part of bank inefficiency is persistent, suggesting that structural long-term factors (such as location, client structure, macroeconomic environment, regulation, etc.) play a bigger role than time-varying factors.

Suggested Citation

  • Ivan Huljak & Reiner Martin & Diego Moccero, 2022. "The productivity growth of euro area banks," Journal of Productivity Analysis, Springer, vol. 58(1), pages 15-33, August.
    • Handle: RePEc:kap:jproda:v:58:y:2022:i:1:d:10.1007_s11123-022-00637-0
    DOI: 10.1007/s11123-022-00637-0
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    3. Igor Stubelj & Aleš Trunk & Barbara Švagan & Suzana Laporšek, 2023. "Productivity Change in the CEE Commercial Banks during a Period of Restricted Bank Regulation and Stable Economic Growth," Economies, MDPI, vol. 11(10), pages 1-17, October.

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    More about this item

    Keywords

    Euro area banking sector; total factor productivity; cost-efficiency frontier; panel data; time-varying inefficiency; persistent inefficiency;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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