Project Management

Bank Efficiency And Bank Lending Channel: Evidence From A Panel Of European Banks

Date Added: May 2010
Format: PDF

This paper examines two questions: first, it investigates the efficiency of the banking systems in eight European countries over the period 1994 to 2008 by using the production frontier methodology and following the approach suggested in Mester (1996), the authors show that risk factors should be taken into account, otherwise inefficiency tends to be overstated. Another variable which is included in the estimation of bank efficiency is total assets that controls for size. Second, the paper explores the impact of different levels of efficiency on monetary policy, through the bank lending channel using the GMM estimator methodology suggested in Arellano and Bond (1991).