Does Efficiency Make Bank Different in GFC? An Empirical Analysis on Australian, Canadian and UK Banks

This paper employs a mixed two-stage approach to estimate and explain differences in the cross-country efficiency of ten Australian, five UK and eight Canadian banks over the period 1988 to 2008 using stochastic distance, cost and profit frontiers. The first stage estimates efficiency scores for banks from a cross-country common frontier including the uncontrollable environmental factors such as per capita national income, bank concentration, capital adequacy, deposit density and average profit margin, while the second stage investigates how controllable firm-specific factors can explain the differences in efficiency scores among the banks of the three countries. In line with the experience of the banking sector during the recent global finance crisis, the evidence indicates that Australian banks exhibit superior efficiency compared with their Canadian and UK counterparts. Key factors found to affect efficiency positively include intangible assets and the loans-to-deposits and loans-to-assets ratios. In contrast, key factors found to affect efficiency negatively include bank size, loan loss provisions and financial leverage