Non-Parametric Approach to Measuring the Efficiency of Banking Sectors in European Union Countries

The European banking sector has been in the center of interest for the last ten years. There are several reasons for this: An impact of global financial crisis on banks stability; Fundamental influence of banking sector on the effectiveness of governments' anti-crisis actions, Vulnerability of banking institutions to the crisis of the Euro currency and last, but not least, the problems of the biggest banks in Italy and Germany, which for the last decades have been considered as the most efficient. The financial crisis and its negative influence, not only on the small national banks, but also on the strongest International Institutions, has shown that the problem of measurement of efficiency of the banking sector is still a current topic, important not only from the perspective of academic research, but also form the point of view of National and International Regulators. In this context, the objective of this study is to propose a methodology for a comprehensive evaluation of operational efficiency of the banking sectors in EU countries. The pointed problem is often discussed in a nonlinear fashion. Thus, the potential methodological proposal should be based on the interaction of multiple inputs with multiple outputs, without the knowledge of the functional relationships between them. In the research, Data Envelopment Analysis, is given as a suitable instrument for this purpose. Thanks to this methodology we measured the degree of (in) efficiency of banking sectors in the EU countries. Additionally, we proposed measures to increase their efficiency. We found that there are differences between the efficiency of banking sectors of "old" fifteen and "new" EU member countries. We also confirmed that there is a noticeable difference between the efficiency of banking sectors within the European Monetary Union members and Countries which do not belong to the Euro-zone.