A comparative analysis of capital, risk, efficiency, profitability, diversification and integration of the Eurozone and the United States banking institutions in the aftermath of the global financial crisis.

Abstract

This thesis provides a comparative analysis of the Eurozone and the United States banks in terms of capital, risk, efficiency, profitability, diversification and integration in the post-economic crisis period. Initially, we examine the development of efficiency and the progress of banking integration in the European Union by checking for convergence among banks of European and Eurozone countries as well as contrasting the results with those of banks in the United States. In the next stage of this analysis, we investigate the development and the interrelationships of bank risk, capital and efficiency of Eurozone and the United States after the global financial crisis. In the last stage of this analysis, we analyze the influence of bank diversification on capital, risk, profitability and efficiency. The findings also reveal how this influence differs depending on the type of diversification (asset, income and non-interest income diversification). Finally, we provide empirical evidence of how all the examined variables and interrelations vary per banking sector (commercial, cooperative and savings banks). For the purposes of our survey, we employ a data sample consisting of aggregate balance sheets and income statement data from 2185 banks of the Eurozone and the United States, while the analyzed period spans from 2013 until 2018. Concerning the methodology, we employ the model of Data Envelopment Analysis developed by Charnes et al. (1978), the panel data model of Phillips, P. C., & Sul, D. (2007), the Three-Stage Least Squares (3SLS) model, developed by Zellner&Theil, (1962), the Adjusted Herfindahl Hirschman Indices (AHHI) and the two-step system generalized method of moments dynamic panel estimator (system-GMM) devised by Arellano and Bover (1995), developed further by Blundell and Bond (1998). Our main findings show that the efficiency of the United States banking system is considerably higher than that of the Eurozone and the European Union. Moreover, there is no evidence of convergence across the reported banking groups, while our results indicate the presence of club convergence in all the examined groups. Furthermore, our findings convey that the United States banking system is closer to convergence than Eurozone and European Union banks. Regarding capitalization, our results indicate that the capital ratio of United States banks is significantly higher than that of Eurozone banks regardless of the type of bank. Moreover, the capital ratios of the banks within the same sector present striking differences with each other. As for the risk ratio, we notice that the risk level of all banking groups and subgroups of our sample increases during the reported period reaching its peak during the year 2018. Furthermore, the empirical evidence leads us to the conclusion that risk and capital are directly related irrespective of the causality order. Moreover, the findings suggest that an increase in efficiency levels may precede an increase in risk. Additionally, our results suggest that capital directly affects the efficiency of all the banks of our sample, with one exception, that of United States savings banks. Our findings also indicate that income diversification has substantial benefits when compared to other types of diversification whereas non-interest income diversification has the most unfavorable results for the reported groups. Additionally, the impact of asset diversification is mixed for the dependent variables and it is contingent on whether a bank operates in the Eurozone or in the United States. Finally, we may also conclude that the banking sector to which a bank belongs is a significant parameter affecting the levels of bank efficiency, the relationship of bank efficiency with capital and risk, the bank integration and the impact of bank diversification.