The levels of bank capital, risk and efficiency in the Eurozone and the U.S. in the aftermath of the financial crisis

Dimitra Loukia Kolia; Simeon Papadopoulos; Dimitra Loukia Kolia; Simeon Papadopoulos

doi:10.3934/QFE.2020004

Quantitative Finance and Economics

2020, Volume 4, Issue 1: 66-90. doi: 10.3934/QFE.2020004

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Research article

The levels of bank capital, risk and efficiency in the Eurozone and the U.S. in the aftermath of the financial crisis

Department of Accounting and Finance, University of Macedonia, Thessaloniki, Greece

Received: 14 December 2019 Accepted: 06 February 2020 Published: 10 February 2020
JEL Codes: G21

This study investigates the development of the levels of capital, risk and efficiency of the Eurozone and the U.S. banking institutions after the financial crisis. Concerning the methodology, we estimate bank efficiency by applying Data Envelopment Analysis. We estimate bank capital by employing the ratio of the value of total equity to total assets and the Z-score is used as an indicator of bank risk. The findings convey that the efficiency level of the Eurozone banks is considerably lower than that of the U.S. banks. Moreover, the efficiency levels on average increase during the reported period while they reach their peak in the year 2014. Secondly, concerning capitalization, our findings indicate that the capital ratios of the banks of the same sector and different country unions have striking differences with each other. As for the risk ratio, U.S. banks record higher levels of risk than Eurozone banks. This study builds on the existing literature by thoroughly examining bank capital, risk and efficiency with a contemporaneous data set, as the research with data from the period 2013 and onwards is very limited. Additionally, our study is the first to focus on the comparison of U.S. and Eurozone bank samples. The comparison is of utmost importance as the country unions have different characteristics and a different speed of recovery from the financial crisis. We also separately investigate the results per bank type (investment, retail and commercial banks).
- bank,
- capital,
- risk,
- efficiency,
- data envelopment analysis,
- z-score
Citation: Dimitra Loukia Kolia, Simeon Papadopoulos. The levels of bank capital, risk and efficiency in the Eurozone and the U.S. in the aftermath of the financial crisis[J]. Quantitative Finance and Economics, 2020, 4(1): 66-90. doi: 10.3934/QFE.2020004

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Abstract

This study investigates the development of the levels of capital, risk and efficiency of the Eurozone and the U.S. banking institutions after the financial crisis. Concerning the methodology, we estimate bank efficiency by applying Data Envelopment Analysis. We estimate bank capital by employing the ratio of the value of total equity to total assets and the Z-score is used as an indicator of bank risk. The findings convey that the efficiency level of the Eurozone banks is considerably lower than that of the U.S. banks. Moreover, the efficiency levels on average increase during the reported period while they reach their peak in the year 2014. Secondly, concerning capitalization, our findings indicate that the capital ratios of the banks of the same sector and different country unions have striking differences with each other. As for the risk ratio, U.S. banks record higher levels of risk than Eurozone banks. This study builds on the existing literature by thoroughly examining bank capital, risk and efficiency with a contemporaneous data set, as the research with data from the period 2013 and onwards is very limited. Additionally, our study is the first to focus on the comparison of U.S. and Eurozone bank samples. The comparison is of utmost importance as the country unions have different characteristics and a different speed of recovery from the financial crisis. We also separately investigate the results per bank type (investment, retail and commercial banks).

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