The cycle of competition in banking industry: The case of European Union

In this study, competition cycle analyses in the banking industry are conducted separately on the basis of the criteria of industrial efficiency, industrial stability, and industrial sustainability. The main objective of this study is to examine the operational practice of the banking industry, to evaluate the applied literature, which refers to the measurement of industrial competitiveness, and to propose a new method for creating a new index from various measurement techniques. Here, the cost efficiency, Z score, and competition measurement methods are utilized. The data used are obtained from the European Union database (2006- 2014) "Bankscope". First part of the study covers the analysis of cost and profit efficiency of banking industry in the European Union countries. The results confirm our hypothesis that the more cost-efficient the resource utilization in the banking industry gets, the more powerfully the industrial activities of the European Union countries support the single market decision. This finding is in line with the expectations of the European Central Bank reports. Second part of the study covers the issues of financial stability and sustainable competition power in the European Union countries. Second hypothesis of the research is as follows: The more stable the banking industry gets, the faster the sustainable level of activity of firms operating in the industry converge to one another. Accordingly, if the convergence parameter is negative and the Z score, which vii represents the stability of the banking system, is positive, the validity of a stable structure for the banking system can be achieved provided that the liquidity is sustainable. This statement confirms our hypothesis. The general hypothesis of the study is that, when the resource usage preference of each decision-making unit can be ordered by adjusted (Borda rule-based) index calculation, the cycle of global competition index can also be calculated for that particular industry given the efficiency, stability, and sustainability criteria in the banking industry. Efficiency, stability, and sustainability indices for sub-components that represent each bank's competitive cycle are aggregated depending on the interaction among them and thus the 2006 year based Global Competition Cycle Index is computed by following an iterative indexing process. In summary, the estimates of competitiveness measures are put into the basis of the theory of economic choice. The originality of the thesis is enhanced and a contribution is made as a solution to the problems investigated in this study by trying to explore a new method to respond to the expected criticism that there is no social theory of competition power in the literature.