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European banks’ technical efficiency and performance: do business models matter? The case of European co-operatives banks

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  • E. Avisoa

Abstract

This paper analyses the technical efficiency of European co-operative banks compared to European commercial banks from 2006 to 2014. For this we use the B-convexity method, an innovative approach in frontier efficient models estimation, to measure banks’ technical efficiency; we also analyse the influence of certain variables on the level of efficiency. Our findings show that: a) a principal component analysis indicates that cooperative banks’ balance sheet are oriented towards lending activities while commercial banks are more oriented towards securities and derivatives activities; b) on average, the technical efficiency of the banks in our sample significantly decreased between 2007 and 2009, before recovering markedly between 2010 and 2012 and stabilizing over the period 2013-2014; c) there is no significant difference in technical efficiency between European cooperative banks and commercial banks, although we observe a slight superiority of commercial banks; d) French cooperative banks have higher levels of technical efficiency than their European peers; and (e) technical efficiency is positively impacted by the banks’ size, suggesting that large banks tend to have higher technical efficiency than smaller banks. This is in line with a trend towards concentration to improve technical efficiency in the European banking sector.

Suggested Citation

  • E. Avisoa, 2016. "European banks’ technical efficiency and performance: do business models matter? The case of European co-operatives banks," Débats économiques et financiers 25, Banque de France.
    • Handle: RePEc:bfr:decfin:25
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    More about this item

    Keywords

    European banking; cooperative banks; technical efficiency; B-convexity; non-parametric frontier approach.;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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