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Analysis of banking system efficiency in the European Union

Author

Listed:
  • Dániel Holló

    (Research fellow, Magyar Nemzeti Bank (central bank of Hungary))

  • Márton Nagy

    (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

In addition to aspects related to financial stability, the cost efficiency gap observed between the banking systems of the old and the new EU member states is also unfavourable from a welfare point of view. In the majority of new member states, banks are likely to price the relatively high rate of cost efficiency losses and the oligopolistic factor linked to insufficient competition in the interest rates. The high loan and low deposit interest rates may prevent, through the volume effect, an upturn in savings and investment propensity, and thereby the implementation of a higher path of economic growth. In the course of our research, we measured variations in efficiency in the member states of the European Union and attempted to explain the reasons for such differences. We evidenced on an empirical basis that the degree of differences between member states and their change through time is significantly determined by the characteristics of the operational environment and the conscious behaviour of management. The conscious behaviour of management is of exclusive relevance in the long term, for the impact of advantages and disadvantages underlying the operational environment is reduced or eliminated through the integration of financial markets and institutions and the establishment of the Single European Market.

Suggested Citation

  • Dániel Holló & Márton Nagy, 2006. "Analysis of banking system efficiency in the European Union," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 1(1), pages 21-26, June.
  • Handle: RePEc:mnb:bullet:v:1:y:2006:i:1:p:21-26
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    File URL: http://www.mnb.hu/letoltes/mnb-bull-2006-06-daniel-hollo-marton-nagy.pdf
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    References listed on IDEAS

    as
    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. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Constantin Anghelache & Alexandru Manole & Madalina Anghel & Mugurel Popovici & Marius Popovici, 2016. "Significant aspects regarding the analysis of bankruptcy risk," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(9), pages 81-87, September.
    2. Constantin ANGHELACHE & Madalina – Gabriela Anghel & Diana Valentina SOARE & Alexandru BADIU, 2016. "Model Analysis of the financial Performance of the Loan and the Borrower," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(5), pages 32-36, May.

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    More about this item

    Keywords

    parametric approach; X- and alternative profit-efficiency; Fourier-flexible functional form; banking system.;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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