The implications of latent technology regimes for competition and efficiency in banking

Arbeitspapier

Banks continue to differ in many ways, for instance with respect to business models, growth strategies, or financial health. Neglecting these differences confuses inefficiency with heterogeneity while sub-sample estimation prohibits efficiency comparisons across different samples. We use a latent class stochastic frontier model to estimate simultaneously multiple technology regimes and group membership probabilities. The latter are conditioned on six bank traits of German banks and we identify four signifficantly different technology regimes. Only small, retail focused banks exhibit cost inefficiencies, which are 5.4% on average and thus substantially lower compared to previous studies. We use technology regime specific cost parameters to measure competition with Lerner indices. Large, national universal banks and the smallest, most specialized banks exhibit the lowest level of competition. In turn, medium sized universal banks are both efficient and exhibit the lowest Lerner margins between 1994 and 2004.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 2 ; No. 2008,15

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Banks ; competition ; efficiency ; latent class frontier ; strategy ; Bank ; Technische Effizienz ; Bankensystem ; Wettbewerb ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Koetter, Michael ; Poghosyan, Tigran
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/19792
• Last update: 10.03.2025, 11:42 AM CET