Javier Quesada

Cost and profit efficiency in European banks

Abstract In recent years, over a hundred studies have analysed the efficiency of financial institutions, mostly centring on costs. However, the few available studies that estimate profit frontier functions report efficiency levels that are much lower than cost efficiency levels, implying that the most important inefficiencies are on the revenue side. There are also few studies that run comparisons at an international level, and none of these deals with profit efficiency. This paper analyses, by means of alternative techniques, both cost and profit efficiency in a sample of ten countries of the European Union for the period 1993–1996, again obtaining profit efficiency levels lower than cost efficiency levels. The paper also examines several possible sources of the differences in measured efficiency, including differences in size, specialisation, other bank characteristics, and market characteristics.

Technical progress in Spanish banking: 1985-1994

Over the last decade, the Spanish banking sector has undergone a radical structural change. The old bank statu quo has broken down due both to the impact of technical change and to a strong deregulation process, that has given way to a much freer and competitive economic environment. Similarly, the rapid and intensive diffusion of new technologies on information has modified the banking industry in an important way. The effect of these three phenomena (technical change, deregulation and increased competition) on production costs for the Spanish savings banks are the objectives of this study. We review three alternative econometric methods of approaching the impact of technical change. Since we have available an incomplete data panel and with the aim of checking on the possibility that each firm has a particular level of efficiency -captured by the fixed effect-, we estimate the function using both techniques, pooling data and panel data. In other words, we estimate a mean costs function (OLS estimator) as well as a frontier costs function (panel data techniques).We address the question of whether technical progress affects banks in a different way according to size and, finally, with the purpose of isolating our estimates of technical change from the evolution of financial costs and, therefore, of the role of competition and deregulation, we estimate a cost function using only operating costs. In this way we obtain a stricter measure of the impact of technical change. En la ultima decada, el sector bancario espanol ha estado sometido a un radical cambio estructural. El viejo statu qua bancario se rompio debido al impacto del cambio tecnico y al fuerte proceso desregulador. Adicionalmente, la rapida difusion de las nuevas tecnologias de la informacion ha modificado la industria bancaria de forma importante. El objetivo de este estudio es analizar el efecto de estos tres fenomenos (cambio tecnico, desregulacion e incremento de la competencia) en los costes de produccion de las cajas de ahorro espanolas. Para ello se utilizan tres metodos econometricos alternativos para analizar el impacto del cambio tecnico.Ante la disponibilidad de datos de panel y con el objetivo de considerar la posibilidad de que cada empresa presente un nivel de eficiencia individual -recogido por el efecto fijo- se realizan las estimaciones considerando una funcion de costes media (estimador de MCO) asi como una funcion de costes frontera (mediante tecnicas de panel).Se analiza si el progreso tecnico afecta a los bancos de manera diferente segun su tamano, finalmente, con el proposito de aislar las estimaciones del cambio tecnico de la evolucion de los costes financieros y, por tanto, de la competencia y desregulacion, se estima una funcion de costes utilizando solo los costes operativos. De esta forma se obtiene una medida mas estricta del impacto del cambio tecnico.

Efficiency and Banking Strategies in Spain

Over recent years important changes have taken place in the Spanish banking sector, requiring banks to adopt adequate strategies. Commercial and savings banks have faced new problems posed by the dynamics of the environment and have anticipated new directions in the banking business. In the sequence cause-effect-response it is possible to consider features that are common to the whole banking sector as well as others that differ by firm.

Interest rate, expectations and the credibility of the bank of Spain

This paper tries to precisely date the change of monetary policy regimeoccurred in Spain along the year 1984 moving away from controlling monetaryaggregates into interest rate targeting. The most likely date for the changeis estimated and, surprisingly, there is evidence that agents learn quiterapidly about the new intermediate target. A week after the change, the termstructure of interest rates shows how market agents attribute much moreinformational content to interest rate changes than they did before. Two typesof transitions are tried, namely, using a one step and a gradual logisticswitching function. Este documento pretende establecer la fecha exacta del cambio en lapolitica monetaria -del control de agregados monetarios al control de tipos deinteres- que tuvo lugar en Espana a lo largo del ano 1984. Se determina lafecha mas probable del cambio, y se observa que, sorprendentemente, losagentes asimilan rapidamente este nuevo objetivo. Alrededor de una semanadespues del cambio, la estructura de los tipos de interes muestra como losagentes de mercado atribuyen mucho mas contenido informacional a los cambiosen los tipos de interes que anteriormente. Se suponen dos tipos de transicion:un ajuste instantaneo y otro gradual segun una funcion logistica.

The Sources of Spanish Regional Growth

Over the last 20 years, the Spanish economy has followed a sustained growth trend – with the exception of a very short recession in 1993 – interrupted by the current global crisis initiated in the middle of 2007. Spain’s growth has been driven both by a very intensive process of labour employment creation – accompanied by large improvements in qualification – and a great effort made in capital accumulation. Across the board the results have been positive, especially from the labour market perspective. The slashing of the unemployment rate (a chronic problem in Spain for more than 20 years) has been remarkably positive, concurrent with a fast increase in the participation of women in the labour force. The fact that Spain has turned from a country of emigrants into a country with immigrants clearly shows this process, indicating that in recent years foreigners have found good job and welfare opportunities in the country. In spite of these undeniably positive results, Spain has also shown some weaknesses that threaten to condition its future recovery. Probably the most serious problem today is the poor performance of labour productivity. The origin of this problem is twofold: firstly, a product specialisation in activities that are very intensive in labour and have low value added; and secondly, the inefficient use of the production factors capital and labour. Although both determinants are common to most of the other EU countries, they have been aggravated in the Spanish case by the high and increasing weight of the construction sector (including real estate activities) characterised by the intensive use of labour – particularly unqualified – slow penetration of technical progress; and with high risk of suffering cyclical speculative bubbles that sooner or later burst and cause the collapse of other key industries.

The Impact of a Housing Price Bubble on the Intensity of the Recent Credit Crunch: Evidence from Different Countries

For almost two years international financial markets have been under great pressure, originating with the sub-prime mortgage episode. This, in turn, was triggered by the downturn of the US housing cycle and spread quickly into third countries in the form of severe losses and an increasing lack of confidence. Market liquidity dried up almost instantly and banking sectors around the world suffered great financial distress. It became increasingly difficult for many financial intermediaries to refinance operations as overall loanable funds reduced. This process started a chain reaction in which bankers reduced exposure to loans. As a result, getting loans became more difficult for consumers and businesses, with lenders preferring to hold a very liquid position rather than risk facing a wave of bankruptcies and mortgage defaults. Consequently, interest rates skyrocketed and clear signs of an imminent severe credit crunch spread throughout the economy.1