Deregulation, Entry of Foreign Banks and Bank Efficiency in Australia

46 Pages Posted: 9 Jan 2003

See all articles by Jan-Egbert Sturm

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Barry Williams

Department of Banking and Finance; Financial Research Network (FIRN)

Date Written: December 2002

Abstract

This study considers the efficiency of banking in Australia during the post-deregulation period 1988-2001. Since 1986 restrictions upon foreign bank entry and foreign ownership have been effectively abolished. Using Data Envelopment Analysis (DEA) and Malmquist Indices, we find that the new foreign banks are more (input) efficient than domestic banks, mainly due to their superior scale efficiency. However, this superior efficiency did not necessarily result in superior profits. Our results are consistent with the limited global advantage hypothesis of Berger et al (2000). We argue that the major Australian banks have used size as a barrier to entry to the new entrants in the post-deregulation period. Furthermore, bank efficiency seems to have increased post-deregulation and the competition resulting from diversity in bank types was important to prompt improvements in efficiency. Finally, the recession of the early 1990s resulted in a distinct shift in the process of efficiency changes.

Keywords: Foreign Banks, Deregulation, Data Envelopment Analysis, Malmquist Indices

JEL Classification: G21, G28

Suggested Citation

Sturm, Jan-Egbert and Williams, Barry, Deregulation, Entry of Foreign Banks and Bank Efficiency in Australia (December 2002). CESifo Working Paper Series No. 816. Available at SSRN: https://ssrn.com/abstract=367160

Jan-Egbert Sturm (Contact Author)

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

Barry Williams

Department of Banking and Finance ( email )

Building H
Caulfield East, Victoria 3145
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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