An Efficiency Analysis of Banking Systems: A Comparison of European and United States Large Commercial Banks Using Different Functional Forms (download PDF 275 Kb)

Bernardo Maggi and Stefania P. S. Rossi

This paper aims at investigating the efficiency of European and U.S. commercial banks. Scale and scope economies indicators, as well as a measurement of X-efficiency are derived from three cost functions: Fourier flexible form, translog and Box-Cox. This allows checking the stability and the robustness of the evidence across the different specifications. Our results over the period 1995-98 show that overall the average cost curve is relatively flat with some evidence of scale efficiency gains. More puzzling are the results on the presence of scope economies.

JEL classification: G21; C23; C52; D24.

Keywords: European and U.S. commercial banks, cost efficiency, scale and scope economies, Translog and Fourier flexible cost function, Box-Cox.