Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208339
Authors: 
Huljak, Ivan
Martin, Reiner
Moccero, Diego
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper No. 2305
Abstract: 
We use an industrial organisation approach to quantify the size of Total Factor Productivity Growth (TFPG) for euro area banks after the crisis and decompose it into its main driving factors. In addition, we disentangle permanent and time-varying inefficiency in the banking sector. This is important because lack of distinction may lead to biased estimates of inefficiency and because the set of policies needed in both cases is different. We focus on 17 euro area countries over the period 2006 to 2017. We find that cost efficiency in the euro area banking sector amounted to around 84% on average over the 2006 to 2017 period. In addition, we observe that Total Factor Productivity growth for the median euro area bank decreased from around 2% in 2007 to around 1% in 2017, with technological progress being the largest contributor, followed by technical efficiency. Given the need to boost productivity and enhance profitability in the euro area banking sector, these findings suggests that bank's efforts in areas such as rationalisation of branches, digitalisation of business processes and possibly mergers and acquisitions should be intensified.
Subjects: 
euro area
banking sector
financial stability
bank productivity
total factor productivity
cost-efficiency frontier
panel data
time-varying inefficiency
permanent inefficiency
JEL: 
C23
D24
G21
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3567-8
Document Type: 
Working Paper

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