Evaluating the German Bank Merger Wave

Michael Koetter

No 05-16, Working Papers from Utrecht School of Economics

Abstract: German banks experienced a merger wave throughout the 1990’s. However,the success of bank mergers remains a continuous matter of debate.In this paper we suggest a taxonomy as how to evaluate post-merger performanceon the basis of cost efficiency (CE). We categorise mergers a successthat fulfill simultaneously two criteria. First, merged institutes must exhibitCE levels above the average of non-merging banks. Second, banks mustexhibit CE changes between merger and evaluation year above efficiencychanges of non-merging banks. We employ this taxonomy to characterise(successful) mergers in terms of various key-performance and structural indicatorsand investigate the implications for four prominent policy issuesparticular to German banking. Our main conclusions are threefold. First,roughly every second merger is a success. Second, the margin of success isnarrow, as the CE difference amounts to approximately 1 percentage point.Third, it takes around seven years after a transaction until maximum meanCE differentials materialise.

Keywords: Bank mergers; cost efficiency (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-com, nep-eec, nep-eff and nep-fmk
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Citations: View citations in EconPapers (9)

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Working Paper: Evaluating the German bank merger wave (2005)
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