Size matters: analyzing bank profitability and efficiency under the Basel III framework

Abstract The latest regulatory framework, which has been introduced globally in the form of Basel III, and its implementation legislation member states European Union generated much interest impact regulation on efficiency profitability banks. This study aims to examine introduction two major changes (Basel II III) bank performance, terms size bank-specific macroeconomic variables. A two-stage empirical analysis was conducted a sample 433 commercial banks over 2006–2015 period. In first stage, relative calculated using non-parametric data envelopment analysis. second generalized method moments used variables as well that is, efficiency. Considering size, results show diverse performance. Regarding large- medium-sized banks, positively affects both profitability, whereas, for small it negatively suggest larger have skillfully adapted new environment. contrast, problems with because framework imposed additional administrative burdens. could result future failure or mergers resulting higher concentration banking sector increased systemic risk. Our strongly should not be implemented equally all banks; one fits terms. distinction between large when introducing frameworks made if reasonable level competition is preserved.