Main determinants of efficiency and implications on banking concentration in the European Union

Rafael Bautista Mesa, Horacio Molina Sánchez and Jesús Nicolás Ramírez Sobrino

Revista de Contabilidad - Spanish Accounting Review, 2014, vol. 17, issue 1, 78-87

Abstract: This study aims to measure the main determinants influencing bank efficiency. We suggest that the bank efficiency ratio, obtained from the income statement, is positively related to the size of a bank in terms of total assets. However, we believe that such a relationship cannot be maintained for banks over a certain size. By the use of the regression analysis method, we analyze the link between bank efficiency and bank size, using a sample of 3952 banks in the European Union. Our results show that the efficiency ratio stops improving for banks with total assets over $25 billion. Previous literature, using different analysis techniques, does not reach an agreement on this point. Furthermore, our study identifies further variables which negatively affect the efficiency of banks, such as competition and lending diversification, or affect them positively, such as the wholesale funding ratio and income diversification. Our findings imply the need for different bank policies depending on total assets, in order to limit the size and activities of banks.

Keywords: Bank efficiency; Bank size; Concentration; Diversification; Wholesale funding; Capital ratio; Eficiencia bancaria; Dimensión bancaria; Concentración; Diversificación; financiación mayorista; Ratio de capital (search for similar items in EconPapers)
JEL-codes: E58 F33 G21 G28 M41 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:spacre:v:17:y:2014:i:1:p:78-87

DOI: 10.1016/j.rcsar.2013.08.006

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