Efficiency and risk in european banking

Arbeitspapier

We analyze the impact of efficiency on bank risk. We also consider whether bank capital has an effect on this relationship. We model the inter-temporal relationships among efficiency, capital and risk for a large sample of commercial banks operating in the European Union. We find that reductions in cost and revenue efficiencies increase banks’ future risks thus supporting the bad management and efficiency version of the moral hazard hypotheses. In contrast, bank efficiency improvements contribute to shore up bank capital levels. Our findings suggest that banks lagging behind in their efficiency levels might expect higher risk and subdued capital positions in the near future.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1211

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Financial Markets and the Macroeconomy
• Subject: banking risk ; capital ; Efficiency ; Bankrisiko ; Rentabilität ; Bank ; Eigenkapital ; Panel ; Kausalanalyse ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fiordelisi, Franco ; Marqués-Ibáñez, David ; Molyneux, Phil
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/153645
• Last update: 10.03.2025, 11:42 AM CET