Bank Efficiency In The Context Of European Monetary Integration

The financial sector is the backbone of every market economy. Banks play an important and in some European countries even a dominant role. Although the financing structure of the Euro area turned to capital market-based system as the United States, it still strongly depends on bank sectors. With the continuously deepened of EU integration process, the banking sectors in Europe has experienced some basic changes and the structure is undergoing a rapid transformation. Investigation and research of banks efficiency is particularly urgent.This paper first reviews the development of EMU, the start-up of Euro, as well as the deepening of European integration. Then in part two, with relatively data, this paper analyses the changes of banking industry in the context of the European integration. First, the introduction of Euro led some of the banks business areas disappear, while other areas of business'structure and framework conditions have also changed. Second, Many traditional separation of financial market is not exist in Europe, the enter costs for bank field is also declined. Thus, competitions in bank sectors increased. Third, the European monetary integration accelerate the integration process of the banking sector, the number of banks in the EU 15 countries has been a substantial reduction, and the number of branches has risen, and the number of representative offices of foreign banks has increased quite rapidly.At the same time, this paper offers the data analysis on the actual net income of banking sectors, the ratio of costs and revenues, and the return on capital, shows the trends in the performance of the European banking sectors. With the integration of European Union, the EMU will lead European financial and banking sector more competitiveness and more integration. Price will be more transparent, and bank industry will continue merger in a fast pace.In the third part, this paper sorts out the relevant efficiency evaluation of the banking sector. And in the fourth part, this paper used DEA methods to analysis the banking efficiency in 11 European Countries: Portugal, and Greece; the Czech Republic, Hungary, Poland and Slovakia, Estonia, Latvia and Lithuania, Bulgaria and Romania, aims to estimate and compare the efficiency of banking sector. Those 11 countries represent four relatively homogenous at different stages of European integration and economic development levels. The analysis tests the hypothesis that advanced phases of integration and higher economic levels are associated with greater efficiency of banking sectors. Assumes that bank collects deposits to transform them into loans, using labor and capital. The model employed three inputs (labor, capital and deposits) and two outputs (loans and net interest income).The results reveal that the banks efficiency are different in regions, and that advanced phases of integration and higher economic levels are associated with greater efficiency of banking sectors. But the rapid growth of Central and Eastern European commercial banks is gradually replacing their gap to the traditional EU countries. Based on the regional and national analysis on bank efficiency, this paper also studies further on the lending policy, the personal costs and fixed assets.Finally, this paper studies other factors of the bank efficiency of Europe, closely related to the EU integration process. To analyze potential revenue from the single market and EMU, economic of scale and scope, deregulation and technological advances are also important. Nowadays, the increasing providers of financial services and the greater European market created by EMU and the merger trend, are means the structure of the European banking sector will continued to experience a significant change.