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Abstract
The paper investigates efficiency in national banking systems by fitting the so-called simple canonical law, a generalization of Zipf’s law, to publicly available data. This law is expected to be applicable to any system that is optimizing the cost of delivery of outcomes under the constraint of a fixed quantity of outcome. The parameters required to fit the data are the cybernetic temperature and a “competitivity parameter”, reflecting dynamical and structural aspects respectively. A novel classification of banking systems emerges from a comparison of the data from different countries. Additional qualitative insight emerges from examining the variation of the parameters during the last few years. A key finding of the analysis is that underlying structural weakness (and strength) can be revealed, features which, as recent financial turbulence has shown, may remain hidden in conventional analysis.
Published Version
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