In light of the policy debate on too-big-to-fail we investigate evidence of economies of scale for 103European listed banks over 2000 to 2011. Using the Stochastic Frontier Approach, the results show that economies of scale are widespread across different size classes of banks and are especially large for the biggest banks. At the country level, banks operating in the smallest financial systems and the countries most affected by the financial crises realize the lowest scale economies (including diseconomies) due to the reduction in production capacity. As for the determinants of scale economies, these mainly emanate from banks oriented towards investment banking, with higher liquidity, lower Tier 1 capital, those that contributed less to systemic risk during the crises, and those with too-big-to-fail status.JEL codes: G21
This study examines the high-tech investment activity of the banking system in the period following the Global Financial Crisis, from 2009 to 2020. To gain an understanding of the effect of the increasing interest of banks in high-tech investments, this research provides evidence of the relationship between the level of efficiency achieved by Euro Area banking groups and their high-tech investment aptitude. This paper is purely exploratory given that, to the best of our knowledge, it is one of the first to address this specific research question. We analyze in detail the association between bank efficiency (measured using a stochastic frontier approach) and different high-tech investment indicators, as well as the direction of this connection to provide an explanation for the relationship. We find a stable and overall significant relationship between banks’ efficiency and their high-tech investment aptitude. Moreover, we find that only medium efficiency banking groups that adopt a more diversified investment acquisition strategy have a positive relationship with high-tech investment aptitude; otherwise, the relationship between bank efficiency and high-tech investment indicators seems to be negative. Regulators should be aware of this bank acceleration in the enhancement of high-tech investment because it can reduce the stability of banking groups and because an increase in intangibles assets (e.g. patents) could also be motivated by an interest rather than an earnings management strategy.
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