Journal
JOURNAL OF BANKING & FINANCE
Volume 52, Issue -, Pages 208-216Publisher
ELSEVIER
DOI: 10.1016/j.jbankfin.2014.08.012
Keywords
Convergence; European banking; Banking efficiency; Parametric distance function; Phillips and Sul convergence method
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Funding
- Czech Science Foundation [GACR 13-03783S]
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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. (C) 2014 Elsevier B.V. All rights reserved.
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