Technical and managerial efficiency assessment of European banks using a conditional nonparametric approach

• Published in: International transactions in operational research Vol. 28; no. 2; pp. 560 - 597
• Main Authors: Minviel, Jean Joseph, Ben Bouheni, Faten
• Format: Journal Article
• Language: English
• Published: Oxford Blackwell Publishing Ltd 01.03.2021; Wiley
• Subjects: Banks; Computational Engineering, Finance, and Science; Computer Science; conditional efficiency; Efficiency; lending; managerial efficiency; nonparametric order‐m frontier; Nonparametric statistics; Operations research; Organizational aspects; nonparametric order-m frontier; managerial efficiency; lending; banks; conditional efficiency
• ISSN: 0969-6016; 1475-3995
• DOI: 10.1111/itor.12872

This paper investigates the conditional technical and managerial efficiency of European banks through the lending channel using a robust nonparametric frontier approach. We select the largest commercial banks in France, Germany, the United Kingdom, Italy, Spain, and Greece over the period 2005–2013 for our study. The estimates show significant technical inefficiency in the use of available resources for banks in our sample. The overall measure of managerial efficiency suggests sound managerial performance. However, at a detailed level, we find that, for each country examined, banks exhibit large proportions of poor managerial performance. This may explain why some banks could not resist the 2008 financial crisis. Regarding institutional factors, we find capital requirements and bank size are associated with bank efficiency in a nonlinear manner. These findings provide support for contextual factors in determining bank efficiency and rethinking financial reforms.