Dynamic technical and allocative efficiencies in European banking |
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| Affiliation: | 1. Economics Department, Lancaster University Management School, LA1 4YX, United Kingdom;2. Isenberg School of Management, University of Massachusetts-Amherst, 90 Campus Center Way, 209A Flint Lab, Amherst, MA 01003, United States;3. The University of Kent, Kent Business School, Canterbury, Kent, United Kingdom;1. Department of Economics, University of Haifa, Haifa 31905, Israel;2. Research Department, Federal Reserve Bank Boston, 600 Atlantic Avenue, Boston, MA 02210, USA;1. School of Mathematical Sciences, University of Science and Technology of China, Hefei, Anhui Province 230026, China;2. Department of Industrial Engineering and Operations Research, Columbia University, New York, NY 10027, United States;1. Imperial College London, South Kensington Campus, London SW7 2AZ, United Kingdom;2. The Business School, University of Auckland, Private Bag 92019, Auckland 1142, New Zealand;1. Swiss Finance Institute, University of Lugano, Switzerland;2. Applied Academics LLC, New York, USA;3. Chicago Board Options Exchange, Chicago, USA;4. CEPR, UK |
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| Abstract: | This paper examines the performance of European banks during the pre-crisis and post-crisis periods, both in terms of technical and allocative efficiencies. We use an innovative Bayesian dynamic frontier model that: (1) distinguishes between short-run and long-run performance; and (2) provides impulse response functions to examine the dynamic effect of shocks in technical and allocative inefficiencies. Based on a rich sample of European banks, we show that while there was a drop in efficiency for most countries following the crisis, the long-run results suggest improvement both in terms of technical and allocative efficiencies. The impulse response functions also show that in the case of shocks in the system, banks seem to revert back to these long-run allocative efficiency scores. We discuss the results in terms of the current financial crisis and provide interesting implications for the European banking industry. We also discuss the determinants of technical and allocative efficiencies. (We would like to thank Professor Allen N. Berger and Professor Andy Mullineux for their valuable comments on the early version of this paper.) |
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| Keywords: | European banks Financial crisis Technical efficiency Allocative efficiency Short- and long-run |
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