|dc.description.abstract||This thesis contributes via the concept of efficiency in four distinct
fields of the fi nancial economics and banking literature: technological
heterogeneity, liquidity creation, profitability, and stability of banks.
In Chapter 1 we motivate the analysis by presenting the main developments that have been taking place in the banking sector as far as these four elds are concerned and highlight their importance to the appropriate functioning of the nancial system and of the economy
In Chapter 2 we address the issue that conventional surveys on
bank efficiency draw conclusions based on the assumption that all banks
in a sample use the same production technology. However, efficiency
estimates can be severely distorted if the existence of unobserved differences in technological regimes is not taken into consideration. We estimate the unobserved heterogeneity in banking technologies using a latent class stochastic frontier model. In order to arrive at a policy
implication that is valid across time and markets, we present two applications of the model using separately data from the UK and Greek banking sector over the periods 1987-2011 and 1993-2011 respectively.
To increase the precision of our inferences, we adopt two distinct empirical methodologies: a panel data method and a pooled cross-section
modelling strategy. Our results reveal that bank-heterogeneity in both
banking sectors can be controlled for two technological regimes. We
find a trade-o¤ between the level of sophistication within a fi nancial
system and its level of aggregate efficiency. Consistency among the
results is established under both methodologies. Further, we propose
a methodology with regard to M&As activity of UK and Greek banks
within a latent class context. We examine numerous potential M&A scenarios among banks that belong to different technological regimes, and we test whether there is a transition of the new banks to a more efficient technological class resulting from this M&A activity. We find
strong evidence that new financial institutions can be better equipped
to withstand potential adverse economic conditions. Finally, we cast
doubt on what the true motivation for M&A activity is and we extract
important policy inferences in terms of social welfare.
In Chapter 3 we introduce the "Cost Efficiency - Liquidity Creation Hypothesis" (CELCH) according to which a rise in a bank s cost
efficiency level increases its level of liquidity creation. By employing
a novel stress test scenario under a PVAR methodology, we test the
CELCH and the direction of causality among liquidity creation and
cost efficiency variables in the UK and Greek banking sector. Moreover
using new measures of liquidity creation (Berger and Bouwman, 2009)
we address the question of whether potential M&As can enhance liquidity creation and create additional credit channels in the economy. We
evaluate and compare the robustness of potential consolidation scenarios by employing half - life measures (Chortareas and Kapetanios 2013).
We show a positive impact of cost efficiency on liquidity creation in line
with CELCH. The empirical evidence further suggests that potential
consolidation activity can enhance the ow of credit in the economy.
Bank shocks seem to be the most persistent on both liquidity creation
and cost efficiency and the UK banking system is found to withstand
more effectively adverse economic conditions. Finally, we cast doubts
on the strategy followed by policy authorities regarding the recent wave
of M&As in the Greek banking sector.
In Chapter 4, we attempt to shed light on the trade-o¤ between
fi nancial stability and efficiency. We highlight that current tests of
banking efficiency do not take into account whether banks managers
are taking too much or too little risk relative to the value maximising
amount. We assume that moving from an intermediary bank type balance sheet to an investment bank type not only changes the risk-return combination of the balance sheet but also increases the banks degree
of instability, that is the probability of insolvency when adverse effects occur. To this extent, we propose a new efficiency measure which incorporates all the aforementioned ambiguous points. An empirical investigation of US commercial banks between 2003-2012 suggests that
our proposed risk-adjusted index has superior explanatory power with
respect to banks profi tability and gives better predictions compared
to conventional banking efficiency measures. This holds after various
Chapter 5 summarizes the main findings of all three distinct studies and concludes by highlighting the importance and the contributing
points of the thesis in the banking and financial economics literature.||en_US