Consolidation and Efficiency in the Financial Sector: A Review of the International Evidence

Abstract

In response to fundamental changes in regulation and technology, the financial industry around the world is undergoing an unprecedented wave of consolidation. A growing body of empirical literature has attempted to measure the efficiency gains from M&As; however there is little sense of how the results might depend on the country, industry and time period analysed. In this paper we review critically works that cover the main sectors of the financial industry (commercial and investment banks, insurance and asset management companies) in the major industrialised countries over the last twenty years, searching for common patterns that transcend national and sectoral peculiarities. We find that consolidation in the financial sector is beneficial up to a relatively small size in order to reap economies of scale, but there is little evidence that mergers yield economies of scope or gains in managerial efficiency.

Social efficiency in microfinance institutions

“…The subject of country of establishment and commercial bank efficiency has been studied, amongst others, by Berg et al (1993), and Amel et al (2004). An earlier study found that MFIs operating in different countries, adapt to the environment in which they work; Gutié rrez-Nieto et al (2006).…”

Financial deregulation and profit efficiency: A nonparametric analysis of Indian banks

“…Contrary to expectations, their findings revealed that profit efficiency is not positively correlated with cost efficiency, suggesting the possibility that cost and revenue inefficiencies may be negatively correlated. Recently, Amel et al (2004) provided a comparative international review of profit efficiency in the context of consolidation within the financial sector. They found an average level of profit efficiency of about 50% and cautioned that such estimates are very sensitive to specification and estimation methods.…”

IMPACT of FINANCIAL CRISIS 2008-2009 on BANKING SECTOR STRUCTURE IN UKRAINE

“…For example, McAllister and McManus (1993) and Wheelock and Wilson (2001) find that banks face increasing returns to scale up to at least $500 million of total assets. Amel et al (2004) report that commercial banks in the USA with assets in excess of $50 billion have higher operating costs than banks in smaller size classes. This would suggest that, even allowing for growth in the minimum efficient scale over time, today's largest banks may be well beyond the technologically optimal point.…”