Analysis of the Italian Banking System Efficiency: A Stochastic Frontier Approach

Part of the Studies in Fuzziness and Soft Computing book series (STUDFUZZ, volume 305)

Abstract

The paper provides an analysis of some features of the Italian banking system during the decade 1998 – 2008. In particular, it focuses on the efficiency of Italian banks—in terms of parametric cost and profit functions—taking into account the dualistic structure which characterizes the Italian economy, the bank size, and the juridical form. During this period the Italian banking system has experienced a higher level of competition and significant ownership changes; these phenomena had a relevant impact on the performance of all banks. In particular, we found a reduction of differences in the efficiency between Northern and Southern banks. In addition, small banks exhibit a higher level of efficiency compared with the large ones. Finally, we observe that Mutual Banks improved in a significant way their performance compared with the banks organized as limited companies and cooperative. These results confirm the ability of local small Mutual Banks to effectively and successfully compete in the markets characterized by global operators. The reason for the continuing vitality of local banks is due to the fact that they offer a different product from large global banks and attract customers, specially small local firms, which external global banks would find difficult to serve.

Keywords

Italian Banking System Stochastic Frontiers Cost and Profit Efficiency JEL: D2 G21 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Alessandrini, P. (ed.): Il Sistema Finanziario Italiano tra Globalizzazione e Localismo, Il Mulino, Bologna (2001)Google Scholar
  2. Amel, D., Barnes, C., Panetta, F., Salleo, C.: Consolidation and efficiency in the financial sector: A review of the international evidence. Journal of Banking and Finance (28), 2493–2519 (2004)Google Scholar
  3. Avery, R.B., Samolyk, K.A.: Bank consolidation and small business lending: the role of community banks. Journal of Financial Services Research (25), 291–325 (2004)Google Scholar
  4. Battese, G.E., Coelli, T.J.: Frontier production functions, technical efficiency and panel data: with application to paddy farmers in India. Journal of Productivity Analysis (3), 153–169 (1992)Google Scholar
  5. Battese, G., Coelli, T.: A stochastic frontier production function incorporating a model for technical inefficiency effects. Working Papers in Econometrics and Applied Statistics No 69, Department of Econometrics. University of New England. Armidale (1993)Google Scholar
  6. Battese, G., Coelli, T.: A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical Economics (20), 325–332 (1995)Google Scholar
  7. Battese, G., Corra, G.S.: Estimation of a Production Frontier Model: With Application to the Pastoral Zone of Eastern Australia. Australian Journal of Agricultural Economics (21), 169–179 (1977)Google Scholar
  8. Baumol, W.J., Panzar, J.C., Willig, R.D.: Contestable Markets and The Theory of Industry Structure. HBI, New York (1982)Google Scholar
  9. Berger, A., Hanweck, G., Humphrey, D.: Competitive viability in banking: Scale, scope and product mix economies, Board of Governors of the Federal Reserve System, Working Paper Series (1986)Google Scholar
  10. Berger, A., Mester, L.: Inside the black box: What explains differences in the efficiencies of financial institutions? Journal of Banking and Finance (21), 895–947 (1997)Google Scholar
  11. Berger, A.N., De Young, R.: Problem loans and cost efficiency in commercial banks. Journal of Banking and Finance (21), 849–870 (1997)Google Scholar
  12. Berger, N.A., Saunders, A., Scalise, J.M., Udell, G.F.: The effects of bank mergers and acquisitions on small business lending. Journal of Financial Economics (50), 187–229 (1998)Google Scholar
  13. Berger, A.N., Udell, G.F.: Small Business Credit Availability and Relationship Lending: the Importance of Bank Organizational Structure. The Economic Journal (112), 32–53 (2002)Google Scholar
  14. Bonaccorsi di Patti, E., Gobbi, G.: The Changing Structure of Local Credit Markets: Are Small Businesses Special? Journal of Banking and Finance (25), 2209–2237 (2001)Google Scholar
  15. Berger, N.A., Kunt, A.D., Levine, R., Haubrich, J.G.: Bank Concentration and Competition: An Evolution in the Making. Journal of Money, Credit and Banking (36), 433–451 (2004)Google Scholar
  16. Bongini, P., Ferri, G.: Il Sistema Bancario Meridionale, Laterza editore, Bari (2005)Google Scholar
  17. Berlin, M., Mester, L.: Deposits and Relationship Lending. The Review of Financial Studies (12), 579–607 (1999)Google Scholar
  18. Brighi, P., Venturelli, V.: Analisi economica del credito cooperativo: il caso Emilia-Romagna. Banche e Banchieri (4), 301–319 (2005)Google Scholar
  19. Butzbach, O., Lopes, A.: Mutamento degli assetti proprietari e performance del sistema bancario nel Mezzogiorno (1994-2003). In: Giannola, A. (ed.) Riforme istituzionali e mutamento strutturale. Mercati, imprese e istituzioni in un sistema dualistico, Carocci, Roma, pp. 231–251 (2006)Google Scholar
  20. Butzbach, O.: Il vantaggio comparativo delle banche cooperative nella letteratura economica, in questo volume (2011)Google Scholar
  21. Caves, D., Christeensen, L.: Flexible cost functions for multiproduct firms. The Review of Economics and Statistics (62), 477–481 (1980)Google Scholar
  22. Carter, D.A., McNulty, J.E., Verbrugge, J.A.: Do Small Banks have an Advantage in Lending? An Examination of Risk-Adjusted Yields on Business Loans at Large and Small Banks. Journal of Financial Services Research (25), 233–252 (2004)Google Scholar
  23. Cesarini, F., Ferri, G., Giardino, M.: Credito e sviluppo: banche locali cooperative e imprese minori, Il Mulino, Bologna (1997)Google Scholar
  24. Coelli, T., Prasada Rao, D., Battese, G.: An introduction to efficiency and productivity analysis. Kluwer Academic Publishers (1999)Google Scholar
  25. Cornes, R., Sandler, T.: The Theory of Externalities, Public Goods and Club Goods. Cambridge University Press (1996)Google Scholar
  26. de Bruyn, R., Ferri, G.: Le ragioni delle banche Popolari: motivi teorici ed evidenze empiriche, Dipartimento di Scienze Economiche e Finanziarie, Università di Genova, Working Paper n. 1, Gennaio (2005)Google Scholar
  27. DeYoung, R., Hunter, W.C., Udell, G.F.: The Past, Present, and Probable Future for Community Banks. Journal of Financial Services Research (25), 85–133 (2004)Google Scholar
  28. Dowd, K.: Competitive Banking, Bankers’ Clubs, and Bank Regulation. Journal of Money, Credit, and Banking (26), 289–308 (1994)Google Scholar
  29. Farrell, M.: The Measurement of Productive Efficiency. Journal of the Royal Statistical Society, Series A 120, 253–281 (1957)CrossRefGoogle Scholar
  30. Forsund, F., Lovell, C.K., Schmidt, P.: A Survey of Frontier Production Functions and of Their Relationship to Efficiency Measurement. Journal of Econometrics (13), 463–476 (1980)Google Scholar
  31. Ferri, G., Inzerillo, U.: Ristrutturazione bancaria, crescita e internazionalizzazione delle PMI meridionali. Indagine su un campione di imprese manifatturiere, Centro Studi Confindustria, Working paper n. 10 (2002)Google Scholar
  32. Giannola, G., Lopes, A.: Vigilanza, efficienza, mercato; sviluppo e squilibri del sistema creditizio italiano. Rivista Italiana degli Economisti (1), 25–54 (1996)Google Scholar
  33. Giannola, A.: Il credito difficile, L’Ancora del Mediterraneo, Napoli (2002)Google Scholar
  34. Giannola, A.: Finanza ed autogestione. In: Salani, M.P. (ed.) Lezioni cooperative. Contributi ad una teoria dell’impresa cooperativa, Il Mulino, Bologna, pp. 219–234 (2006)Google Scholar
  35. Giannola, A.: Vigilanza prudenziale, consolidamento del sistema bancario e divari territoriali, Svimez, Rivista. Economica del Mezzogiorno XXI(2), 343–367 (2007)Google Scholar
  36. Giannola, A.: Bank mergers and Credit allocation Among Italian Regions. In: Silipo, D. (ed.) The Banks and the Italian Economy, pp. 125–133. Springler, Heidelberg (2009)CrossRefGoogle Scholar
  37. Giordano, L., Lopes, A.: Management Quality and Risk Preference as Determinants of Efficiency in the Italian Banking System. Studi Economici 91, 55–74 (2007)Google Scholar
  38. Giordano, L., Lopes, A.: Measuring efficiency of the banking system in a dualistic economy. Evidence from the Italian case. In: Silipo, D. (ed.) The Banks and the Italian Economy, pp. 185–209. Springler, Heidelberg (2009)CrossRefGoogle Scholar
  39. Grillo, M. (ed.): Banca e mercato, Il Mulino, Bologna (1988)Google Scholar
  40. Hughes, J.P., Mester, L.: A quality and risk-adjusted cost function for banks: evidence on the too-big-to-fail doctrine. Journal of Productivity Analysis (4), 293–315 (1993)Google Scholar
  41. Hughes, J.P., Mester, L.: Evidence on the Objectives of Bank Managers, Working Paper Wharton School University of Pennsylvania (94-15) (1994)Google Scholar
  42. Kodde, D.A., Palm, F.C.: Wald criteria for jointly testing equality and inequality restrictions. Econometrica (54), 1243–1248 (1986)Google Scholar
  43. Kumbhakar, S., Lovell, C.A.K.: Stochastic frontier analysis. Cambridge University Press, New York (2000)MATHCrossRefGoogle Scholar
  44. Kwan, S.R.E.: Bank risk, capitalization and inefficiency, The Wharton School, University of Pennsylvania (95-35) (1995)Google Scholar
  45. Imbriani, C.: Banking system and the dualistic development of the Italian economy. In: Di Matteo, M., Piacentini, P. (eds.) The Italian Economy at the Dawn of the XXI Century, Aldershot Ashgate (2003)Google Scholar
  46. Imbriani, C., Lopes, A.: Intermediazione finanziaria e sistema produttivo nel Mezzogiorno tra efficienza e redditività. In: Giannola, A. (ed.) Il Mezzogiorno tra stato e mercato, il Mulino, Bologna, pp. 281–294 (1999)Google Scholar
  47. Imbriani, C., Lopes, A.: Ownership change and efficiency in the Italian banking system. A case study. Quaderni di Ricerche 62, Ente per gli studi monetari, bancari e finanziari Luigi Einaudi, Roma (2007)Google Scholar
  48. Mayers, D., Smith, C.: Ownership structure across lines of property-casualty insurance. Journal of Law and Economics (31), 351–378 (1988)Google Scholar
  49. Onado, M.: Economia dei sistemi finanziari, Il Mulino, Bologna (1992)Google Scholar
  50. Petersen, M., Rajan, R.: The Effect of Credit Market Competition on Lending Relationships. Quarterly Journal of Economics (110), 406–443 (1995)Google Scholar
  51. Pittaluga, G.B., Morelli, P., Seghezza, E.: Fondamenti teorici della corporate governance e comportamento delle banche popolari, Dipartimento di Scienze Economiche e Finanziarie, Università di Genova, Working Paper n. 2, Gennaio (2005)Google Scholar
  52. Shrieves, R., Dahl, D.: The relationship between risk and capital in commercial banks. Journal of Banking and Finance (16), 439–457 (1992)Google Scholar
  53. Sapienza, P.: The Effects of Banking Mergers on Loan Contracts. Journal of Finance (57), 329–367 (2002)Google Scholar
  54. Varian, H.: Monitoring Agents with Other Agents. Journal of Institutional and Theoretical Economics (146), 153–174 (1990)Google Scholar
  55. Williams, J.: Determining management behaviour in European banking. Journal of Banking and Finance (28), 2427–2460 (2003)Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Companies and Stock Exchange CommissionConsobRomeItaly
  2. 2.University of Rome “Sapienza”RomeItaly
  3. 3.Second University of NaplesNaplesItaly

Personalised recommendations