International Comparisons of Banking Efficiency

26 Pages Posted: 3 Aug 2007

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Abstract

The banking industry around the globe has been transformed in recent years by unprecedented consolidation and cross-border activities. However, international consolidation has been considerably less than might have been expected in developed nations - such as long-term members of the EU - where barriers to entry have been significantly lowered. In contrast, foreign-owned banks have generally achieved much higher penetration in developing nations. We investigate the extent to which these differences may be related to bank efficiency concerns by reviewing and critiquing over 100 studies that compare bank efficiencies across nations. The studies are in three distinct categories: (1) comparisons of bank efficiencies in different nations based on the use of a common efficient frontier, (2) comparisons of bank efficiencies in different nations using nation-specific frontiers, and (3) comparisons of efficiencies of foreign-owned versus domestically owned banks within the same nation using the same nation-specific frontier. The research - particularly the findings in the third category - is generally consistent with the hypothesis that efficiency differences help to explain the consolidation patterns. The efficiency disadvantages of foreign-owned banks relative to domestically owned banks tend to outweigh the efficiency advantages in developed nations on average, and this situation is generally reversed in developing nations, with notable exceptions to both findings. We also stress the need for further research in this area.

Suggested Citation

Berger, Allen N., International Comparisons of Banking Efficiency. Financial Markets, Institutions & Instruments, Vol. 16, No. 3, pp. 119-144, August 2007. Available at SSRN: https://ssrn.com/abstract=1004623 or http://dx.doi.org/10.1111/j.1468-0416.2007.00121.x

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
36
Abstract Views
2,764
PlumX Metrics