The comparison of efficiency between the banks under FHCs and independent banks: An empirical study for the commercial banks in Taiwan

Abstract

There are already 16 financial holding companies (FHC) in Taiwan since the Bank Mergers and Acquisitions Act and Financial Holding Company Act were respectively signed into law on November 2000 and June 2001 and only one company does not own its bank now Hence whether a bank should join or establish the system of FHC is a problem We adopt Data Envelopment Analysis (DEA) to examine efficiency of the data from the domestic banks in Taiwan in the period from 2003 to 2012 and further divide them into two groups- the bank under FHC and the independent bank We find that the results depend on the distinct periods In 2003 to 2006 the banks under FHCs were more efficient it could be attributed to their fully exertion of the advantage of FHC In fact even when facing the credit card and cash card crisis in 2006 FHC suffered less than independent one However the financial crisis in 2008 and 2009 severely harmed the banks under FHCs while independent banks did not suffer dramatically The condition may be attributed to the relatively complicated business of the banks under FHCs After 2009 the banks under FHCs have never surpassed independent banks in efficiency anymore The trend of integration and elimination of independent banks in Taiwan in these ten years contribute to the results Furthermore the banks under FHCs and independent banks can be more efficient if they individually improve pure technique efficiency and scale efficiency In conclusion in the viewpoint of efficiency independent banks in Taiwan do not have to join or establish financial holding companies

Date of Award	2014 Feb 7
Original language	English
Supervisor	Yu-Hong Liu (Supervisor)