Efficiency in Banking: Empirical Evidence from the Savings ... - Ivie

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diseconomies of scale in all countries (except Austria and Italy). This finding suggests there are unrealised benefits that could be achieved through increased size for small savings banks, or through consolidation. The fact that scale economies increase with size and that optimal bank size is inexhausted supports an argument for further consolidation. Considering that the years 1993 to 1996 contain the most data, Table 4 shows that the smallest size group is the most mean cost X-efficient between 1993 and 1996, despite mean X-inefficiency deteriorating over this period. At 1996, however, the most cost-efficient savings banks had assets between ECU 200-299.9 million, followed by size classes ECU 100-199.9 (21.3%), ECU 1-99.9 million (21.4%) and ECU 1,000– 2,499.9 million (21.5%). The least X-efficient size class in 1996 was the largest class (above ECU 5,000 million) with a mean X-inefficiency of 22%. The data for 1996, however, show first, that smaller savings banks are losing their apparent cost efficiency advantage, second, slightly larger savings banks are becoming more X-efficient (ECU 200-299.9 million), which could reflect policy makers earlier decision to create savings banks of greater mass. Finally, the range of X-inefficiencies across savings banks of different size class has narrowed suggesting that previously visible cost efficiency advantages pertaining to asset size may be dissipating over time (see Table 4). There are four organisational and economic models that are commonly being followed by European savings banks 13 . These models are not entirely heterogeneous with several common elements, including commitment to social and economic activities within localities and the sharing of technology. Generally, the models reflect a spectrum of different ownership types, ranging from state to private ownership and non-profit 18
orientation to profit. The first model is the ‘state’ model in which savings banks, generally, are non-profit institutions owned by mutual authorities and subject to some operational and geographic boundaries (for example, Germany). The second ‘mixed’ model has a more diverse ownership structure than the ‘state’ model, including municipal authorities, depositors and employees (for example, Spain). Under the ‘state’ and ‘mixed’ models savings banks have limited means of raising equity capital due to their ownership. This is not the case in the two remaining models, the ‘in-transition’ model and the ‘marketised model’ (for example, Italy and the UK, respectively). In the former model, savings banks are in the process of converting their organisational form to joint stock company status, first to reduce public fiscal responsibility to savings banks, and second to allow savings banks to raise private equity capital through the issue of shares. The latter ‘marketised’ model is the final outcome of the ‘in-transition’ model. It is characterised by the demutualisation of a large proportion of the savings banks sector with increasing competitive pressures on remaining mutuals. There is no strong evidence to suggest that one model dominates the others in terms of either X-efficiency or economies of scale. In cases where the average size 14 of savings banks has increased (for example, as a result of restructuring in France and through consolidation in Spain), evidence that larger average size conveys translates into greater X-efficiencies is ambiguous. Interestingly, the least X-efficient savings banks are in sectors that can be classified as ‘in-transition’ and ‘marketised’ (for example, the restructured Finnish and demutualised Belgian sectors, respectively). Nevertheless, this 13 See Gardener et al. (1997). 14 The average assets size of savings banks as classified by the five models is as follows. French, ECU 5,699 m; German, ECU 1,427 m; Italian, ECU 3,779 m; Spanish, ECU 5,372 m; UK building societies, ECU 2,486 m. The data are at 1997 (Gardener et al. 1999). 19
Page 1 and 2: Efficiency in Banking: Empirical Ev
Page 3 and 4: which have to stand up to competiti
Page 5 and 6: underlying cost functions, whereas
Page 7 and 8: decomposed into changes in pure tec
Page 9 and 10: (1977) and Meeusen and van den Broe
Page 11 and 12: distort scale economy measurements
Page 13 and 14: lnP l = the natural logarithm of it
Page 15 and 16: Within sample scale economies are c
Page 17: optimal bank size appears to be ine
Page 21 and 22: In accordance with Mester's (1996)
Page 23 and 24: References Aigner, D., C. Lovell an
Page 25 and 26: Institute of European Finance, Chal
Page 27 and 28: Table 1 Descriptive statistics of t
Page 29 and 30: Table 3 Scale economies for Europea
Page 31 and 32: Table 5 Logistic parameter estimate

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