Regional Bank Efficiency and Its Effect on Regional Growth in 'Normal' and 'Bad' Times

33 Pages Posted: 26 Jan 2016

See all articles by Ansgar Hubertus Belke

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Ulrich Haskamp

University of Duisburg-Essen - Department of Economics and Business Administration

Ralph Setzer

European Central Bank (ECB)

Date Written: October 21, 2015

Abstract

The financial crisis affected regions in Europe in a different magnitude. This is why we examine whether regions which incorporate banks with a higher intermediation quality grow faster in "normal" times and are more resilient in "bad" ones. For this purpose, we measure the intermediation quality of a bank by estimating its profit and cost efficiency while taking the changing banking environment after the financial crisis into account. Next, we aggregate the efficiencies of all banks within a NUTS 2 region to obtain a regional proxy for financial quality in twelve European countries. Our results show that relatively more profit efficient banks foster growth in their region. The link between financial quality and growth is valid in "normal" and in "bad" times. These results provide evidence to the importance of swiftly restoring bank profitability in euro area crisis countries through addressing high non-performing loans ratios and decisive actions on bank recapitalization.

Keywords: bank efficiency; financial development; regional growth; Europe

JEL Classification: G21, O16, O47, O52

Suggested Citation

Belke, Ansgar Hubertus and Haskamp, Ulrich and Setzer, Ralph, Regional Bank Efficiency and Its Effect on Regional Growth in 'Normal' and 'Bad' Times (October 21, 2015). Ruhr Economic Paper No. 586, Available at SSRN: https://ssrn.com/abstract=2706580 or http://dx.doi.org/10.2139/ssrn.2706580

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Ulrich Haskamp (Contact Author)

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

Ralph Setzer

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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