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The impact of the single supervisory mechanism on Eurozone banking: the assessment of trends in efficiency and frontier position

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  • Paloma Moura
  • Flávia Barbosa
  • Carlos Alves
  • Ana S. Camanho

Abstract

The Single Supervisory Mechanism (SSM) was implemented as a first step towards a Banking Union in November 2014. This paper investigates the impact of the SSM on Eurozone banks’ efficiency and position of best-practice frontier. It is based on a balanced panel analysis of 931 European bank-year observations from 2011 to 2017 (133 banks, seven years). The study uses Data Envelopment Analysis and a difference-in-differences approach to explore the evolution of banking performance. We found that the SSM had a negative impact on the efficiency levels of Eurozone banks, particularly in the year after the introduction of the mechanism. Additionally, we observed that the frontier formed by non-Eurozone European Union banks is more productive than the frontier of Eurozone banks in all the years analysed. Both efficiency and frontier position show evidence of a recovery trend in more recent years for both groups. We also found that while Equity-to-Asset Ratio, Return on Average Assets and Gross Domestic Product per capita positively impacted banks’ efficiency, domestic credit provided by banks expressed as %GDP had a negative impact on efficiency.

Suggested Citation

  • Paloma Moura & Flávia Barbosa & Carlos Alves & Ana S. Camanho, 2024. "The impact of the single supervisory mechanism on Eurozone banking: the assessment of trends in efficiency and frontier position," Applied Economics, Taylor & Francis Journals, vol. 56(58), pages 8481-8510, December.
    • Handle: RePEc:taf:applec:v:56:y:2024:i:58:p:8481-8510
    DOI: 10.1080/00036846.2023.2290598
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