Do Performance and Environmental Conditions Behave as Barriers for Cross-Country Banking Activity in Europe?

Our paper shows how the efficiency scores of the commercial banks of a given European country will change if they decide to move to a different European country. Our experiment is performed over a sample of 700 banks belonging to 11 European countries. We propose to perform a specific analysis for each pair of countries. We consider each time three types of DEA models. The internal model, which considers the banking inputs and outputs and the banks of a single country. The basic model, which considers the same variables as the internal model but the banks of the two countries under study, and the complete model which adds to the basic model the set of environmental variables. These three models allow us to measure the technical as well as the environmental variable gaps between the two considered countries. In this way, we are able to predict the new efficiency score of any bank that decides to operate in a different country. The results indicate, as expected, that being technologically advanced appears to be a significant deterrence to foreign competition and that adverse environmental conditions constitute a real barrier for cross-border banking activity.