Bank Size, Specialization and Efficiency: The Netherlands, 1992-1998
30 Pages Posted: 22 Mar 2002
Date Written: February 2002
In this paper, we assess cost and profit efficiency for a sample of banks operating on the Dutch banking market in the period 1992-1998, using stochastic frontier analysis. Over the entire period, the cost-efficient frontier deteriorates, but mean cost efficiency and profit efficiency are relatively stable at the industry level. No evidence is found for trend changes in mean efficiency due to the previous consolidation and deregulation. However, whereas all banks appear to perform rather similarly in terms of cost efficiency, in terms of profit efficiency large general banks and specialized bank clearly outperform small, general banks. Large banks appear to benefit from sheer size and perhaps market power. This is evidence in favor of the large banks behaving collusively and capturing oligopoly rents. Specialized banks operate savely and efficiently in what might be termed niche markets.
Keywords: X-efficiency, Stochastic Frontiers, Banking
JEL Classification: G21, L11, L22, L23
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