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Bank performance and convergence during the financial crisis: Evidence from the ‘old’ European Union and Eurozone

Roman Matousek, Aarti Rughoo, Nicholas Sarantis and A. George Assaf

Journal of Banking & Finance, 2015, vol. 52, issue C, 208-216

Abstract: This paper investigates the process of banking integration in the EU15 countries and the Eurozone by testing for convergence in bank efficiency among commercial banks. We use a two-step approach: First we estimate efficiency by applying an innovative methodological approach that treats banks’ non-performing loans as an undesirable output. Second, we apply the Phillips and Sul (2007) panel convergence methodology to assess the convergence process in European banking. Our results indicate an overall decline in efficiency and no evidence of group convergence following the financial crisis. However, we find the presence of club formation with typically weak convergence. The heterogeneity displayed by the transition parameters for the individual countries and the notable decrease in competition levels post 2008 highlight the impact of the financial crisis on the integration process.

Keywords: Convergence; European banking; Banking efficiency; Parametric distance function; Phillips and Sul convergence method (search for similar items in EconPapers)
JEL-codes: F36 G21 C33 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:eee:jbfina:v:52:y:2015:i:c:p:208-216