Measuring Cost Efficiency in European Banking: A Comparison of Frontier Techniques

This paper investigates the consistency of efficiency frontier methods on European banking samples. We measure the cost efficiency of banks from five European countries (France, Germany, Italy, Spain, Switzerland) with three approaches: stochastic frontier approach, distribution-free approach, and data envelopment analysis. We compare means, correlation coefficients, two public policy issues, and the correlation with standard measures of performance. In general, we conclude in favor of the lack of robustness between approaches, even if there are some similarities in particular between parametric approaches. We do, however, observe some correlation between all frontier approaches and standard measures of performance.