Measuring performance of banks as an assessment of competition
Adequate performance of financial institutions is of crucial importance to their customers. Prices and quality of their products are determined by efficiency and competition. Since efficiency and competition cannot be observed directly, various indirect measures in the form of simple indicators or complex models have been devised and used both in theory and in practice. This chapter demonstrates that it is difficult to measure the performance of banks and that indicators differ strongly in terms of quality. It investigates which methods are to be preferred and how by combining certain indicators stronger measures may be developed. Finally, an analysis is made of the predictive validity of these indicators.