The Efficiency of French Banking Industry

Abstract

Major structural changes have affected the French banking industry during the second half of the 1980s, what suggests that the French banks were operating with a significant level of inefficiencies before this period. The purpose of this study is to present estimates of X‐Efficiencies and Scale‐Efficiencies in French banks for the 1988–1992 period which followed this wave of changes. The data are annual accounting data for corporate, mutual and savings banks. The sample contains 375 depository banks. By using the “distribution free” method of efficiency estimation, our estimations show that average X‐efficiencies of the French banks are in the range of 70% to 90%. Our results confirm also the existence of scale economies in French banking industry. Scale efficiency estimates show clearly that French banks could reduce average costs by about 15% on average by increasing size in order to reach the efficient size. Note that this result is also in conformity with the hypothesis that some excess capacity could exist in French banking industry.