Bank performance and convergence during the financial crisis: Evidence from the ‘old’ European Union and Eurozone

This paper investigates the process of banking integration in the EU15 countries and the Eurozone by testing for convergence in bank efficiency among commercial banks. We use a two-step approach: First we estimate efficiency by applying an innovative methodological approach that treats banks’ non-pe...

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Bibliographic Details
Published in:Journal of banking & finance 2015-03, Vol.52, p.208-216
Main Authors: Matousek, Roman, Rughoo, Aarti, Sarantis, Nicholas, George Assaf, A.
Format: Article
Language:English
Subjects:
Bank acquisitions & mergers
Banking
Banking efficiency
Commercial banks
Competition
Competition between banks
Convergence
Eastern Europe
Economic crisis
Efficiency
European banking
European Union
Eurozone
Financial crisis
Methodology
Nonperforming loans
Parametric distance function
Phillips and Sul convergence method
Studies
Western Europe
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Summary:This paper investigates the process of banking integration in the EU15 countries and the Eurozone by testing for convergence in bank efficiency among commercial banks. We use a two-step approach: First we estimate efficiency by applying an innovative methodological approach that treats banks’ non-performing loans as an undesirable output. Second, we apply the Phillips and Sul (2007) panel convergence methodology to assess the convergence process in European banking. Our results indicate an overall decline in efficiency and no evidence of group convergence following the financial crisis. However, we find the presence of club formation with typically weak convergence. The heterogeneity displayed by the transition parameters for the individual countries and the notable decrease in competition levels post 2008 highlight the impact of the financial crisis on the integration process.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2014.08.012