European banks’ technical efficiency and performance: do business models matter? The case of European co-operatives banks

This paper analyses the technical efficiency of European co-operative banks compared to European commercial banks from 2006 to 2014. For this we use the B-convexity method, an innovative approach in frontier efficient models estimation, to measure banks’ technical efficiency; we also analyse the influence of certain variables on the level of efficiency. Our findings show that: a) a principal component analysis indicates that cooperative banks’ balance sheet are oriented towards lending activities while commercial banks are more oriented towards securities and derivatives activities; b) on average, the technical efficiency of the banks in our sample significantly decreased between 2007 and 2009, before recovering markedly between 2010 and 2012 and stabilizing over the period 2013-2014; c) there is no significant difference in technical efficiency between European cooperative banks and commercial banks, although we observe a slight superiority of commercial banks; d) French cooperative banks have higher levels of technical efficiency than their European peers; and (e) technical efficiency is positively impacted by the banks’ size, suggesting that large banks tend to have higher technical efficiency than smaller banks. This is in line with a trend towards concentration to improve technical efficiency in the European banking sector.