Over the last couple of years pressure on the banking system to reform and consolidate has increased significantly. Fueled initially by liberalization of financial markets the process has somewhat accelerated in the course of the still pending crisis of the global financial system. Still, despite of their effect on long-term stability of the financial system, operating inefficiency of banks and the resulting misallocation of resources throughout the financial system have still not got the necessary attention from regulatory bodies and policy makers. To establish a case for a revision of sector policy we will produce and analyze efficiency levels for a balanced panel of European commercial banks over a ten-year period using advanced DEA (Data Envelopment Analysis) modeling and applying AHP (Analytic Hierarchy Process) to capture the strategic dimensions of financial and monetary policy in the European Union. Building on DEA performance data we will try to model potential relations between efficiency in the banking sector and strategic policy variables and the macroeconomic trend, employing panel data models.
Our research into the efficiency of the European banking system is geared towards answering the following key questions:
- How efficient are banks and the banking system in the Euro-zone?
- How did efficiency develop over time (2002 to 2012)?
- Why do overall efficiency levels perform the way they do?
- How effective is current economic policy in the European Union in shaping operating performance in the banking sector?
