A comparative study of efficiency in European banking

This paper investigates whether there has been an improvement in and convergence of productive efficiency across European banking markets since the creation of the Single Internal Market. Using efficiency measures derived from DEA estimation, the determinants of European bank efficiency are evaluated using the Tobit regression model approach. The established literature on modelling the determinants of bank efficiency is then extended by recognizing the problem of the inherent dependency of DEA efficiency scores when used in regression analysis. To overcome the dependency problem, a bootstrapping technique is applied. Overall, the results suggest that since the EU's Single Market Programme there has been a small improvement in bank efficiency levels, although there is little evidence to suggest that these have converged. The results also suggest that inference on the determinants of bank efficiency drawn from non-bootstrapped regression analysis may be biased and misleading.