Year: 2026
Type: article
Abstract: Using Bayesian Monte Carlo methods, we augment a stochastic distance function measure of bank efficiency and productivity growth with indicators of financial stability, profitability, and capitalization. Our novel Multiple Indicator-Multiple Cause (MIMIC)-style model provides more precise estimates of policy-relevant parameters, including bank efficiency and productivity growth. Analyzing EU-15 banks from 2008 to 2015, we find significant disparities in efficiency, revealing a ‘two-speed’ banking sector. Productivity growth has declined, driven primarily by technological regress rather than managerial inefficiencies. Small and peripheral banks exhibit lower efficiency than larger, core-EU banks, though productivity growth appears stronger among smaller institutions. We show that greater technical efficiency is associated with higher profitability, capitalization, and financial stability, as well as reduced earnings volatility.
Authors: Izzeldin, Marwan, Mamatzakis, Emmanuel C., Murphy, Anthony, Pappas, Vasileios, Tsionas, Mike
Institution: Lancaster University
Language: English
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7082310551
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