Testing for convergence in bank efficiency: a cross-country analysis

Abstract

This paper empirically investigates a possible convergence among the operational efficiency of financial institutions across countries. We explore (i) the relative performance of banking industries in two samples (European and global) over time, and (ii) whether banking industries are likely to attain the same level of efficiency in the long run as implied by international financial integration. We find that convergence in bank efficiency is incomplete and limited to European banking industries. Differing level of bank efficiencies across the globe may offer opportunities for international investors who would like to capitalize on such market imperfections. Our findings also have implications for policy makers who are concerned with the full integration and the stability of the global financial system.