A Comparative Study of Efficiency in European Banking

This paper investigates whether there has been an improvement and convergence of productive efficiency across European banking markets since the creation of the Single Internal Market. Using efficiency measures derived from DEA estimation we also evaluate the determinants of European bank efficiency using the Tobit regression model approach. We then extend the established literature on modelling the determinants of bank efficiency by recognising the problem of the inherent dependency of DEA efficiency scores when used in regression analysis. To overcome the dependency problem, we apply a bootstrapping technique. Overall, the results suggest that since the EU's Single Market Programme there has been a small improvement in bank efficiency levels, although there is little evidence to suggest that these have converged. Our results also suggest that inference on the determinants of bank efficiency drawn from non-bootstrapped regression analysis may be biased and misleading