Santiago Carbó

Efficiency in Banking: Empirical Evidence from the Savings Banks Sector

This study aims to contribute to the established literature by using the Fourier flexible functional form and stochastic cost frontier methodologies to estimate scale economies and X-inefficiencies for a large sample of European savings banks between 1989 and 1996. In their extensive review of the bank efficiency literature, Berger and Humphrey note that the volume of European studies has not matched that of the USA and there exists a paucity of cross-country studies. Whereas scale economies are widespread and positively related to bank size, we find no evidence of a significant relationship between size and X-efficiency. Generally, scale economies are found to range between 7 and 10 per cent, while X-inefficiency measures appear to be much larger, around 22 per cent. These results suggest that European savings banks can obtain cost reductions through reducing managerial and other inefficiencies and also by increasing the scale of production. Copyright 2002 by Blackwell Publishers Ltd and The Victoria University of Manchester

European savings banks: facing up to the new environment

Savings banks are an important European banking sector. From their traditional retail banking roots of catering for the poorer social groups and providing a limited range of specialist services, many savings banks today have evolved into full‐service universal banks that are virtually indistinguishable from their commercial bank competitors. Examines the strategic environment, challenges and different adaptive organizational models pursued by European savings banks. From recent survey and case study evidence, finds that savings banks’ strategies across Europe differ significantly in many respects. A common strategic imperative, however, is that savings banks are having to respond to intensifying competition and the related need to improve efficiency at all levels. A practical empirical indicator of these trends and changes is the increasing strategic importance of marketing.

Stakeholder Value in European Savings Banks

In the European banking literature there appears to be a paucity of empirical research on the competitive performance of savings banks. A few broad (‘seminal’) studies, of European savings banks have been published in recent years however.1 This chapter aims to produce some follow-up evidence focussing on one of the key aspects of bank management today (stakeholder value).

CAR 2: the impact of CAR on bank capital augmentation in Spain

This paper reports on tests, using panel methods, of a new capital augmentation model on Spanish savings banks over the period 1987–1996. It is argued that this banking subsector and time frame provide an interesting laboratory of the potential impact of regulation on bank capital augmentation. Early modelling work in this area is built on by extending the control variables to encompass risks not factored into the regulatory capital adequacy ratio, managerial efficiency, innovation and a new productive efficiency variable. The results indicate strong evidence of the impact of the capital adequacy regulatory regime on bank capital augmentation. Furthermore, this impact appears to be related to the relative strictness of the regulatory regime. At the same time the model also confirms the particular importance of the expected return on bank capital and productive efficiency in explaining capital augmentation.

Adaptive Strategies by European Savings Banks: A Case Study of Spain

This chapter summarises some exploratory research commissioned from the Institute of European Finance (IEF) by FIES (Fondo para la Investigacion Economica y Social) of the Spanish Confederation of Savings Banks (CECA) under a project entitled The Future of Savings Banks in the Single Financial Market of the EU’. This project, begun in December 1995 and completed in August 1996, examined the environment and strategic (organisational) prospects for savings banks in the New Europe, characterised by the virtual completion of the SMP (Single Market Programme) and the approach of EMU. The emphasis is on different strategic adaptive organisational models that the savings banks might pursue (and are developing) to survive profitably in the New Europe. The research methodologies deployed in the study include reports by select country experts and a series of ten mini case studies. The particular countries surveyed are Belgium, Denmark, Finland, France, Germany, Italy, Norway, Spain, Sweden and the UK. The project concludes with a more focused analysis of the Spanish savings banks. In some respects, this project is a continuation of the so-called ‘Revell Report’ on Spanish savings banks (Revell, 1989). However, the primary emphasis of the present project is the current and developing organisational strategies being pursued by the European savings banks.

A Revenue-Based Frontier Measure of Banking Competition

Measuring banking competition using the HHI, Lerner index, or H-statistic can give conflicting results. Borrowing from frontier analysis, the authors provide an alternative approach and apply it to Spain over 1992-2005. Controlling for differences in asset composition, productivity, scale economies, risk, and business cycle influences, they find no differences in competition between commercial and savings banks nor between large and small institutions, but the authors conclude that competition weakened after 2000. This appears related to strong loan demand where real loan-deposit rate spreads rose and fees were stable for activities where scale economies should have been realized.

Nature, Consequences and Policy Reactions: An Overview

This chapter provides a broad overview of financial exclusion, with particular reference to UK and US experiences. It explores the meaning and various dimensions of financial exclusion. In addition, the chapter outlines various policy responses that have been used to tackle the problem of financial exclusion.

Tackling Financial Exclusion in the UK

This chapter outlines the various approaches that have been suggested as means to tackling financial exclusion. Eradicating financial exclusion has been a major priority of the UK Government since the mid- 1990’s onwards and is becoming increasingly important throughout Europe and elsewhere. A range of initiatives have been developed. Unlike in the US where policy aimed at dealing with financial exclusion has been mainly through the enactment of various legislation, in the UK the policy response to date has been characterised by Government as ‘facilitator and mediator’, with an emphasis on a partnership approach. In this ‘model’, the banks and the Post Office have a key role to play in helping to overcome financial exclusion. The main features of the various policy approaches taken are discussed in this chapter.

European Policy on Financial Exclusion and Bank Strategies

This chapter explores three areas. First, we examine the broad European policy response to expanding financial exclusion on Chapter 6 and also discuss the implications for banks. Second, we discuss the kinds of strategies that banks have and might develop in this evolving scenario. Finally, we focus on how economic theory may be able to help explain why financial exclusion occurs and in doing so as to provide some practical insight into how the banking system (‘bank strategies’) might be developed to combat exclusion.

Financial Exclusion in Developing Countries

This chapter examines issues relating to financial exclusion in developing countries. There are many parallels between initiatives being made in the developed and developing world to encourage parts of society to make greater use of financial services. Obviously, many developing countries have substantially underdeveloped financial institutions and systems with a much greater part of the population having no financial services. The chapter focuses on the main features of financial exclusion in developing countries and examines various mechanisms that have been suggested to promote financial inclusion covering the role of informal financial networks and various microfinance initiatives. Reference throughout the chapter is made to the broader finance and development literature that also emphasises the promotion of thefinancial services industry as an important driver of economic growth.