The Effects of Privatization and Consolidation on Bank Productivity: Comparative Evidence from Italy and Germany

Abstract

The Italian and German banking systems shared similar characteristics early in the 1990s but have evolved in different directions since then: Italy privatized its publicly-owned banks while Germany has maintained a large share of state-owned savings banks. Contemporaneously, banks in both markets engaged heavily in mergers and acquisitions. We analyze how these activities have affected banks’ productivity in the period 1994-2004, differentiating between technical change, efficiency change and scale economies. We find that privatized banks experienced a significant increase in productivity, especially if they subsequently merged with other banks. German banks were still able to increase their productivity through consolidation.

Keywords: banking market integration, deregulation, total factor productivity, Italy, Germany

JEL Classification: D24, G21, G28, L33