Spatial dependence in the technical efficiency of local banks

Abstract

Cooperative banks primarily compete with one another because they target niche markets that large banks typically ignore. The current study shows that in this competitive environment, the connection between financial intermediaries affects the operational efficiency of small banks. The findings indicate that the capitalization, diversification strategies, funding costs, liquidity, credit quality, and risk of bank neighbors have spillover effects on technical efficiency. Thus, bank networks trigger a cascading effect that demands the attention of bank stakeholders.