Large banks' efficiency in the single European market

This paper examines cost and profit efficiency of large banking firms by defining a common European frontier over the period immediately following the completion of the Single Market Programme in 1992. Despite a slight increase in cost efficiency, country-specific characteristics appear to play important roles in the explanation of cost efficiency scores and significant differences, including varying competitive conditions, seem to exist across European banking markets. In contrast, results derived from the estimation of an alternative profit function seem to suggest that the efficiency gap among countries decreased substantially over the years under study.