Bank Efficiency and Regional Growth in Europe: New Evidence from Micro-Data

35 Pages Posted: 3 Feb 2017

See all articles by Ansgar Hubertus Belke

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Ulrich Haskamp

University of Duisburg-Essen - Department of Economics and Business Administration

Ralph Setzer

European Central Bank (ECB)

Date Written: November 21, 2016

Abstract

This paper examines whether European regions which incorporate banks with a higher intermediation quality grow faster and are more resilient to negative shocks than its less efficient peers. For this purpose, we measure a bank’s intermediation quality by estimating its profit and cost efficiency while taking the changing banking environment after the financial crisis into account. Next, we aggregate the efficiencies of all banks within a NUTS 2 region to obtain a regional proxy for financial quality in twelve European countries. Our results show that relatively more profit efficient banks foster growth in their region. The link between financial quality and growth is valid both in the pre-crisis and post-crisis period. These results provide evidence to the importance of swiftly restoring bank profitability in euro area crisis countries through addressing high non-performing loans ratios and decisive actions on bank recapitalization.

Keywords: Bank Efficiency, Financial Development, Regional Growth, Europe

JEL Classification: G21, O16, O47, O52

Suggested Citation

Belke, Ansgar Hubertus and Haskamp, Ulrich and Setzer, Ralph, Bank Efficiency and Regional Growth in Europe: New Evidence from Micro-Data (November 21, 2016). ECB Working Paper No. 1983, Available at SSRN: https://ssrn.com/abstract=2910866 or http://dx.doi.org/10.2139/ssrn.2910866

Ansgar Hubertus Belke (Contact Author)

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Ulrich Haskamp

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

Ralph Setzer

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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