Abstract
PurposeThis paper investigates the development of efficiency and the progress of banking integration in the European Union by checking for convergence among banks of European and Eurozone countries as well as contrasting the results with those of United States banks.Design/methodology/approachInitially, we employ the two-stage semi-parametric double bootstrap DEA method, which absorbs the effects of possible integration barriers in the measurement of efficiency. Afterwards, we apply a panel data model, in order to investigate the process of banking integration by testing for convergence and for convergent clusters in banking efficiency.FindingsOur main findings show that the bank efficiency of the US is considerably higher than that of the Eurozone and the European Union. Although there is no evidence of convergence across the banking groups, our results indicate the presence of club convergence. We also conclude that the US banking system is closer to convergence than the Eurozone and the European Union banks. Nevertheless, this outcome is subject to change in the future due to the fact that Eurozone and European Union banks' speed of convergence is higher than that of US banks.Originality/valueOur survey is unique in trying to check for convergence while controlling for country-specific and bank-specific factors that affect the efficiency of European and Eurozone banks. Moreover, recent literature does not compare the convergence of efficiency of Eurozone, European and US banking. Finally, in our paper special consideration was given to the comparison of commercial, cooperative and savings banks, as subsets of our banking groups.
Highlights
Since its establishment, the European Union has progressively made a series of reforms in order to improve the integration of European financial markets [1]
The results indicate that efficiency of European banking has increased during the reported period and is more convergent than global banking, but even in this group convergence is at an infant stage
The authors employ a meta-frontier approach in order to fairly compare the efficiency of the banks of different countries, and they find evidence in favor of improvement of the integration of European banking, the efficiency scores vary across the sample
Summary
The European Union has progressively made a series of reforms in order to improve the integration of European financial markets [1]. Carbo Valverde et al (2007) compare the efficiency of 153 large European banks that operate in ten European Union countries during the period 1996–2002 Their results indicate that when environmental variables are controlled for, the efficiency scores of the reported banks are almost the same. The authors employ a meta-frontier approach in order to fairly compare the efficiency of the banks of different countries, and they find evidence in favor of improvement of the integration of European banking, the efficiency scores vary across the sample. Concerning the different methodologies used for the studies, the following table (Table 1) shows that a vast number of the related literature uses Data Envelopment Analysis (DEA) in order to calculate efficiency and β and σ convergence tests to measure integration, while the use of the panel data model of Phillips and Sul is considerably limited. We should mention that the recent research on European banking efficiency (2013-onwards) is very limited
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