The eurozone financial crisis and bank efficiency asymmetries: Peripheral versus core economies

Abstract

This paper assesses the impact of the financial crisis on the levels of banking efficiency within the Eurozone. We examine if the crisis had asymmetric effects on bank efficiency across different regions of the Eurozone, comparing the banks in the financially stressed European periphery to those in the surplus economies of the core during 2005–2012. We use Data Envelopment Analysis (DEA) to measure bank efficiency and the Brockett and Golany (1996) test to identify group-based differences in efficiency. Our results indicate a gradual convergence process in efficiency between the banks of the core and periphery countries up to 2008. This process is reversed with the escalation of the financial crisis from 2009 to 2012 and the pattern of bank performance becomes asymmetric. Moreover, our findings suggest a more benign impact of the crisis on the core banks, which anyway outperform peripheral banks throughout the period considered.