Cost Efficiency of European Cooperative Banks

Matej Kuc ()
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Matej Kuc: Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic

No 2018/21, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper investigates the size–efficiency relation of European cooperative banks during the 2006-2015 period. We employ the Stochastic Frontier Analysis in order to obtain inefficiency estimates and its determinants on the set of 183 cooperative banks from 12 European countries. This work extends the existing literature by focusing on shape of size-efficiency relationship and examining also the post-crisis period after the fall of Lehman Brothers in 2008. Our results show that smaller European cooperative banks are significantly more cost efficient than their bigger peers and that the size-efficiency relation is linear. Interestingly, inefficiency remained roughly stable during the whole observation period without any substantial changes, not even on sub-samples of individual countries. These results imply that no significant consolidation of European cooperative banks can be expected in the near future. We conclude that for cooperatives, it is more efficient to remain small in size rather than to expand. From a policy perspective, we recommend regulators to reflect special nature of cooperative banks and allow them to operate at a small scale enabling their efficiency. As a result, we believe that one-size-fits-all regulation is harmful for efficient operations of cooperative banks in Europe.

Keywords: cooperative banking; efficiency; EU; Stochastic Frontier Analysis (search for similar items in EconPapers)
JEL-codes: D24 D61 E23 G21 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018-09, Revised 2018-09
New Economics Papers: this item is included in nep-eff, nep-eur and nep-hme
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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