Authors: Panagiotis Tziogkidis, Dionisis Philippas, Mike Tsionas

Title: Multidirectional Convergence in European Banking

Abstract

The paper examines the behavioural patterns arising from the analysis of productivity and convergence of European banks supervised by the Single Supervisory Mechanism (SSM). Building upon and extending the multidirectional productivity analysis framework, we propose a novel approach for testing for β-convergence in multiple dimensions. We find substantial asymmetries in the behaviour of financial institutions in aspects respect to productivity change and convergence across dimensions. Our results also reveal asymmetric convergence patterns across the said decompositions and dimensions. Overall, European banks have experienced a positive efficiency change, though a negative technological change, especially after the introduction of the SSM, indicating that the supervisory oversight has motivated banks to allocate their resources more efficiently, though limiting their productive possibilities, especially in terms of loan provisions and investment activities. The change in regulatory oversight also influences convergence in productivity, while we find a conducive role for liquidity and capital adequacy for convergence in non-performing loans and investments.