MEASURING THE EFFICIENCY OF EUROPEAN BANKS: A DIRECTIONAL DISTANCE FUNCTION APPROACH

The aim of this paper was to estimate the technical efficiency of 423 European banks during the period 2013?2015 while simultaneously dealing with discretionary, non-discretionary, desirable, and undesirable factors. The author used the Directional Distance Function approach. Particularly, he considered the fixed assets as a non-discretionary input and the non-performing loans as an undesirable output. The empirical results revealed significant effects on inefficiency measures in comparison to those obtained when excluding undesirable outputs. Moreover, the outcomes showed an increasing level of the average inefficiency for most European countries. These outcomes confirmed the persistence of the negative impact of the financial crises and the inability of the European banking system to really recover from these crises.