Technical progress in Spanish banking1985-1994

Resum

Over the last decade, the Spanisli banking sector has undergone a radical structural cliange. ne old bank sratu guo Iias broken down due both to the impact of technical change and to a strong deregulation process, that has given way to a much freer and competitive economic environment. Similarly, the rapid and intensive difision of new technoloeies on information has modified the banking industry in an important way. The effect of these three phenomena (technical change, deregulation and increased competition) on production costs for the Spanish savings banks are the objectives of this study. We review three altemative econometric methods of approaching the impact of technical change. Since we llave available an incomplete data panel and with the aim of checking on the possibility that each firm has a particular leve1 of efficiency -captured by the f~xedef fect-, we estimate the function using both tecliniques, pooling data and panel data. In other words, we estimate a mean costs function (OLS estimator) as well as a frontier costs function (panel data techniques). We address the question of whether technical progress affects banks in a different way according to size and, finally, with the purpose of isolating our estimates of technical change from the evolution of financia1 costs and, therefore, of the role of competition and deregulation, we estimate a cost function using only operating costs. In this way we obtain a stricter measure of the impact of technical change