Could Efficiency Analysis Help in Predicting Bank Failure? The Case of the 2001 Turkish Crisis
AbstractInefficient, or weak banks, are continuously pointed out as threatening financial stability as they are more likely to fail than efficient ones and thus to weaken the whole banking sector (BIS, 2002). Consequently, banks' efficiency analysis, a measure of bank's management efficiency, should be a useful tool for policy makers to predict bank failure. This paper tests the usefulness of efficiency analysis in predicting bank failure by using the 2001 Turkish banking crisis as a case study. It implements in a first step both parametric, Stochastic Frontier Analysis (SFA), and non-parametric, Data Envelopment Analysis (DEA), to predict Turkish banks' efficiency scores over 1996 to 2001. During this period, 19 out of 55 were taken over by the Turkish Saving and Deposit Insurance Fund (SDIF). In a second step, efficiency scores are tested against the standard CAMELS model to check their capacity in predicting banks' probability to fail, i.e. SDIF taken-over. The findings indicate that banks taken-over were less cost efficient than others. Moreover, banks which were lending to connected parties were also less cost efficient than others. On the methodology side, our results using a parametric approach are found to be more significant than the non-parametric ones.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal Review of Middle East Economics and Finance.
Volume (Year): 6 (2010)
Issue (Month): 1 (July)
Contact details of provider:
Web page: http://www.degruyter.com
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.