Economies of Scale and Efficiency in European Banking: New Evidence

This paper investigates the cost efficiency of 1974 credit institutions across 15 European countries over the five-year period following the implementation of the Second Banking Directive in 1993. The Recursive Thick Frontier Approach is employed to estimate a Augmented Cobb-Douglas cost frontier that allows banks of different types, in different periods, and belonging to different size categories, to operate at different costs per unit of assets. As size economies are exhausted at a balance sheet total of EUR 600 million, we do not find major economic gains from economies of scale for the overall European banking industry. However, the saving bank sector may reduce average costs with roughly 6% by choosing an optimal size for its institutions. No impact of technological progress on the average costs of the full sample of X-efficient banks could be detected but managerial efficient saving banks reduced average costs with 9% during our sample period. The most important reason for inefficiencies in the European banking is managerial inability to control costs. Although in some countries such as the UK and The Netherlands cost reductions were rapidly achieved, the average level of X-inefficiency of European banks still exceeded 16% in 1997.X-efficiency; Economies of scale; European Banking; Cost Frontier; Recursive Thick Frontier Approach

The Recursive Thick Frontier Approach to Estimating Efficiency

The traditional econometric techniques for frontier models, namely the Stochastic Frontier Approach (SFA), the Thick Frontier Approach (TFA) and the Distribution Free Approach (DFA) have in common that they depend on a priori assumptions that are, whether feasible or not, difficult to test. This paper introduces the Recursive Thick Frontier Approach (RTFA) to the estimation of technology parameters when panel data is available. Our approach is based on the assertion that if deviations from the frontier of X-efficient companies are completely random then one must observe for this group of firms that the probability of being located either above or below the frontier is equal to one half. This hypothesis can be tested for panel data sets but requires sorting of the full sample into a group of X-inefficient firms and a group of X-efficient (best practice) firms. The cost frontier is estimated using only the observations of the latter category.Cost/Production Function; Thick Frontier Approach; X-efficiency

When the powerful drag their feet

We examine the timing of group decisions that are taken by weighted voting. Decision-making is in two stages. In the second stage, players vote on a policy restriction. In the first stage, players vote to determine the timing of the second-stage decision: “early”, before players’ types are revealed, or “late”. Players differ in both size and voting power. We show that players with greater power tend to prefer a late vote, whereas less powerful players tend to want to vote early. By contrast, large players tend to prefer an early vote and small players a late vote. We present evidence from the literatures on corporate governance, international relations, European Union governance, and oil extraction. We examine an extension in which players choose the qualified majority threshold besides the timing of the second-stage vote

The Efficiency and the Conduct of European Banks: Developments after 1992

European Central Bank; economic integration; economic performance; EMU; Euro; financial markets

Economies of scale and efficiency in European banking: new evidence

This paper investigates the cost efficiency of 1974 credit institutions across 15 European countries over the five-year period following the implementation of the Second Banking Directive in 1993. The Recursive Thick Frontier Approach is employed to estimate a Augmented Cobb-Douglas cost frontier that allows banks of different types, in different periods, and belonging to different size categories, to operate at different costs per unit of assets. As size economies are exhausted at a balance sheet total of EUR 600 million, we do not find major economic gains from economies of scale for the overall European banking industry. However, the saving bank sector may reduce average costs with roughly 6% by choosing an optimal size for its institutions. No impact of technological progress on the average costs of the full sample of X-efficient banks could be detected but managerial efficient saving banks reduced average costs with 9% during our sample period. The most important reason for inefficiencies in the European banking is managerial inability to control costs. Although in some countries such as the UK and The Netherlands cost reductions were rapidly achieved, the average level of X-inefficiency of European banks still exceeded 16% in 1997

The recursive thick frontier approach to estimating efficiency

The traditional econometric techniques for frontier models, namely the Stochastic Frontier Approach (SFA), the Thick Frontier Approach (TFA) and the Distribution Free Approach (DFA) have in common that they depend on a priori assumptions that are, whether feasible or not, difficult to test. This paper introduces the Recursive Thick Frontier Approach (RTFA) to the estimation of technology parameters when panel data is available. Our approach is based on the assertion that if deviations from the frontier of X-efficient companies are completely random then one must observe for this group of firms that the probability of being located either above or below the frontier is equal to one half. This hypothesis can be tested for panel data sets but requires sorting of the full sample into a group of X-inefficient firms and a group of X-efficient (best practice) firms. The cost frontier is estimated using only the observations of the latter category

Challenges for Less Developed Countries: Agricultural Policies in the EU and the US

Agricultural policies adopted by developed countries are considered distortional and detrimental to less developed countries (LDCs). This paper discusses the adverse impacts on less developed countries of the agricultural support regimes of the European Union (EU) and the United States (US). Despite the fact that the budget for agriculture in these constituencies has the same order of magnitude, we find that the EU relies much more heavily on agricultural support than does the US. Specifically, the EU provides agricultural producers with an amount of support that is about two-and-a-half times that of the US, and for most commodities a larger share of farmers’ income stems from support measures as well. While the composition of producer support differs between the EU and US, the per-dollar negative impact of the policies on farmers in LDCs is about equal. Finally, we analyse the medium-term impact of the 2003 reform of common agricultural policy in the EU. We estimate the reform will lead to a reduction of EU producer support of 20 percent by 2013 and will reduce the per-dollar negative impact on LDCs of the policy as well.agricultural support, European Union, US, developing countries, least-developed countries

Gas emissions, minerals, and tars associated with three coal fires, Powder River Basin, USA.

Ground-based surveys of three coal fires and airborne surveys of two of the fires were conducted near Sheridan, Wyoming. The fires occur in natural outcrops and in abandoned mines, all containing Paleocene-age subbituminous coals. Diffuse (carbon dioxide (CO(2)) only) and vent (CO(2), carbon monoxide (CO), methane, hydrogen sulfide (H(2)S), and elemental mercury) emission estimates were made for each of the fires. Additionally, gas samples were collected for volatile organic compound (VOC) analysis and showed a large range in variation between vents. The fires produce locally dangerous levels of CO, CO(2), H(2)S, and benzene, among other gases. At one fire in an abandoned coal mine, trends in gas and tar composition followed a change in topography. Total CO(2) fluxes for the fires from airborne, ground-based, and rate of fire advancement estimates ranged from 0.9 to 780mg/s/m(2) and are comparable to other coal fires worldwide. Samples of tar and coal-fire minerals collected from the mouth of vents provided insight into the behavior and formation of the coal fires

Essays on financial intermediation

Defence date: 29 June 2000Examining board: Prof. Franklin Allen, Wharton School ; Prof. Pierpaolo Battigalli, EUI, internal advisor ; Prof. Dave Cass, University of Pennsylvania, Supervisor ; Prof. Joseph Zeira, Hebrew University of JerusalemPDF of thesis uploaded from the Library digitised archive of EUI PhD theses completed between 2013 and 2017-- Why wealth generates more wealth : finance and financial intermediation -- Asset liquiditity, short term debt and managerial effort : the example of banks -- Economies of scale and efficiency in European banking : new evidenc

Syndicated lending and competition policy : a theoretical perspective

A syndicated loan is a loan or credit commitment granted by multiple banks. Syndicated loans are an extremely important source of external finance for the corporate sector. For example in the year 2004 banks commited more than USD 2 trillion in syndicated loans to firms. To compare, this is about 10 times the amount firms received in 2004 from issuing equity. The bond market was bigger, but thus was notably because of activity in the bond market by financial firms. Non-financial firms attracted much more external finance through syndicated loans than through bonds and other debt securities