A long-term analysis of efficiency in the Italian banking system from 1861 to 2010

Massimiliano Agovino, Silvana Bartoletto and Antonio Garofalo

Structural Change and Economic Dynamics, 2022, vol. 61, issue C, 227-241

Abstract: In this paper, we analyse the performance of the Italian banking system in the 1861–2010 period. In this regard, we apply a stochastic frontier analysis cum ARDL procedure. First, we implement stochastic frontier analysis to the cost function of the Italian banking system in order to identify the years in which the banking system allocated its resources most efficiently. To this end, we propose a version of the stochastic frontier in which the inefficiency term is modelled as a linear function of the capital ratio and of the non-core ratio. The underlying hypothesis is that the efficiency of the banking system is guided by its degree of solvency and stability (capital ratio and non-core ratio, respectively). Finally, in order to verify the existence and stability of a long-term relationship between banking efficiency and capital ratio and non-core-ratio, we implement ARDL estimation. In so doing, we verify whether solvency and stability are two important factors in determining the efficiency of the Italian banking system in the long run. We show that the efficiency of the banking system is influenced negatively by the non-core ratio and positively by the capital ratio, respectively. Finally, only the non-core ratio influences the efficiency of the Italian banking system in the long run.

Keywords: Cost efficiency; Italian banks; Capital ratio; Non-core ratio; Stochastic frontier analysis (search for similar items in EconPapers)
JEL-codes: C01 C22 C61 E58 G21 N23 N24 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0954349X22000339
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:61:y:2022:i:c:p:227-241

DOI: 10.1016/j.strueco.2022.02.015

Access Statistics for this article

Structural Change and Economic Dynamics is currently edited by F. Duchin, H. Hagemann, M. Landesmann, R. Scazzieri, A. Steenge and B. Verspagen

More articles in Structural Change and Economic Dynamics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().