The Impact of Deregulation during 1990-1997 on Banking in Austria

The operating environment for banking in Austria changed substantially during 1990-1997. The changes during the period can be seen as a gradual adjustment towards adherence to European banking standards, which became a legal requirement on Austria’s entry, in 1995, into the European Union. In this paper, we investigate the relative performance of Austrian banks during this period and thereby test the hypothesis of increased competition. The study reveals that Aktiengesellschaften had consistent productivity improvement over the period, Sparkassen, and Volksbanken exhibited a turnaround in productivity in 1997, and Raiffeisenbanken experienced consistent productivity decline. Overall, Austrian banks experienced a decline in average efficiency and productivity until 1996 with slight improvements in 1997. The study reveals evidence of product diversification rather than increased price competition; a decrease in the spread of prices paid for inputs indicates increased competitiveness over the period, which can be attributed to deregulation brought about by EU-membership.