Foreign Bank Diversification and Efficiency Prior to and During the Financial Crisis: Does One Business Model Fit All?

Posted: 16 Sep 2016

See all articles by Claudia Curi

Claudia Curi

Free University of Bolzano-Bozen, Faculty of Economics and Management

Ana Lozano-Vivas

Independent

Valentin Zelenyuk

School of Economics, Centre for Efficiency and Productivity Analysis, The University of Queensland, Australia

Date Written: June 1, 2015

Abstract

Diversified and focused business models may affect foreign bank efficiency differently. We investigate whether there is an optimal business model along three business dimensions—assets, funding and income—and which business model is optimal for foreign banks in a financial center. We apply recently developed non-parametric methods with bootstrap to estimate group efficiency, to test for differences across groups and finally to analyze the link between bank efficiency and diversification measures. Using Luxembourg bank data that include the financial crisis, we find that there is no unique Business model. The most efficient business model appears to be a focused asset, funding and income strategy. Banks’ organizational forms play a role; branches may be preferable to subsidiaries prior to the financial crisis, whereas bank subsidiaries perform better than branches during the financial crisis. However, branches diversified in assets, funding and income exploit efficiency advantages during the financial crisis.

Keywords: Foreign banks, Organizational form, Asset, funding and income diversification, Financial crisis, DEA group-efficiency, Heterogeneous bootstrap

JEL Classification: C14, F23, G21, G28

Suggested Citation

Curi, Claudia and Lozano-Vivas, Ana and Zelenyuk, Valentin, Foreign Bank Diversification and Efficiency Prior to and During the Financial Crisis: Does One Business Model Fit All? (June 1, 2015). Journal of Banking and Finance, Vol. 61, 2015, Available at SSRN: https://ssrn.com/abstract=2839711

Claudia Curi (Contact Author)

Free University of Bolzano-Bozen, Faculty of Economics and Management ( email )

Universitätsplatz 1-Piazza Università 1
Bozen-Bolzano, Bolzano 39100
Italy
+39 0471 13498 (Phone)

Ana Lozano-Vivas

Independent

Valentin Zelenyuk

School of Economics, Centre for Efficiency and Productivity Analysis, The University of Queensland, Australia ( email )

530, Colin Clark Building (39)
Brisbane, 4067
Australia

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