Do performance and environmental conditions act as barriers for cross-border banking in Europe?

This paper attempts to analyse whether banking technology and environmental conditions act as barriers for the entry of foreign banks in each European banking industry. We evaluate how the efficiency score of a representative commercial bank of a given European country changes if it decides to move abroad. To carry out this analysis, we use a sample of 700 banks belonging to 11 European countries. Countries are paired and each couple is studied by using four DEA production frontiers. These frontiers allow us to measure the technological and environmental gaps between the two countries considered and, based on them, to predict the new efficiency score of the representative bank of a country that decides to operate in a different country. The results indicate, as expected, that being technologically advanced appears to be a significant deterrent to foreign competition, and that adverse environmental conditions constitute a real barrier for cross-border banking activity. Additionally, the results suggest that host-nation banking performance is a good safeguard against cross-border competition.