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- Credit Risk And Efficiency In The European Banking Systems: A Three-Stage Analysis

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  • José Manuel Pastor Monsálvez

    (Universitat de València)

Abstract

Increased competition and the attempts of European banks to increase their presence in other markets may have affected the efficiency and credit risk. The first of this aspects is based on the incentive to the banks to reduce cost in order to gain in competitiveness. The second is associated to their lack of knowledge of such markets and/or acceptance of a higher risk in order to increase their market share. Despite the importance of these aspects, banking literature has usually analyzed the effects of competition on the efficiency of banking systems without considering these aspects. The few studies that attempt to obtainrisk adjusted efficiency measures do not consider that part of the risk is due to exogenous circumstances. This article proposes a new three stage sequential technique, based on theDEA model and on the decomposition of risk into its internal and external components, for obtaining efficiency measures adjusted for risk and environment. It is seen that the technique allows the use of any existing technique of incorporation of environmental variables in DEA analysis. El incremento de la competencia y los intentos de los bancos europeos por aumentar supresencia en otros mercados pueden haber afectado tanto al nivel de eficiencia bancaria como alriesgo de crédito. El primero de los aspectos se fundamenta en el incentivo que tienen los bancosa reducir los costes para ganar competitividad. El segundo, está asociado a la ausencia decompetencia en tales mercados y/o a la aceptación de niveles mayores de riesgo con el fin deincrementar la cuota de mercado. A pesar de la importancia de estos aspectos, la literaturabancaria tradicionalmente ha analizado los efectos de la competencia en la eficiencia de lossistemas bancarios sin considerar estos efectos sobre el riesgo. Los escasos estudios queintentan obtener medidas de eficiencia ajustadas por el riesgo no consideran que parte del riesgoes debido a circunstancias exógenas. Este artículo propone una nueva técnica secuenciencial entres etapas, basado en el modelo DEA y en la descomposición del riesgo en sus componentesexterno e interno, para la obtención de medidas de eficiencia ajustadas por el riesgo y elambiente. La técnica se aplica al análisis de la eficiencia de los sistemas bancarios europeos ypermite el uso de cualquiera de las tecnicas existentes para la incorporación de variablesambientales en un contexto DEA.

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File URL: http://www.ivie.es/downloads/docs/wpasec/wpasec-1999-18.pdf
File Function: Fisrt version / Primera version, 1999
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie EC with number 1999-18.

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Length: 33 pages
Date of creation: Dec 1999
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasec:1999-18

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Web page: http://www.ivie.es/
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Keywords: DEA; riesgo de crédito; morosidad; eficiencia; variables ambientales DEA; credit risk; bad loans; efficiency; environmental variables.;

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References

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  1. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
  2. Allen N. Berger & David B. Humphrey, 1992. "Measurement and Efficiency Issues in Commercial Banking," NBER Chapters, in: Output Measurement in the Service Sectors, pages 245-300 National Bureau of Economic Research, Inc.
  3. José Manuel Pastor Monsálvez, 1995. "Eficiencia, Cambio Productivo Y Cambio Técnico En Los Bancos Y Cajas De Ahorro Españolas: Un Análisis Frontera No Paramétrico," Working Papers. Serie EC 1995-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Loretta J. Mester, 1994. "How efficient are Third District banks?," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 3-18.
  5. Richard S. Barr & Thomas F. Siems, 1994. "Predicting bank failure using DEA to quantify management quality," Financial Industry Studies Working Paper 94-1, Federal Reserve Bank of Dallas.
  6. Allen N. Berger & Robert DeYoung, 1997. "Problem loans and cost efficiency in commercial banks," Finance and Economics Discussion Series 1997-8, Board of Governors of the Federal Reserve System (U.S.).
  7. David C. Wheelock & Paul W. Wilson, 1993. "Explaining bank failures: deposit insurance, regulation, and efficiency," Working Papers 1993-002, Federal Reserve Bank of St. Louis.
  8. Joseph P. Hughes & Choon-Geol Moon, 1997. "Efficient Banking Under Interstate Branching," Departmental Working Papers 199609, Rutgers University, Department of Economics.
  9. Loretta Mester, 1993. "Efficiency of Banks in the Third Federal Reserve District," Center for Financial Institutions Working Papers 94-13, Wharton School Center for Financial Institutions, University of Pennsylvania.
  10. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series 1997-11, Board of Governors of the Federal Reserve System (U.S.).
  11. Berg, Sigbjorn Atle & Forsund, Finn R. & Hjalmarsson, Lennart & Suominen, Matti, 1993. "Banking efficiency in the Nordic countries," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 371-388, April.
  12. Joseph P. Hughes & Loretta J. Mester, 1991. "A quality and risk-adjusted cost function for banks: evidence on the " too-big-to-fail" doctrine," Working Papers 91-21, Federal Reserve Bank of Philadelphia.
  13. David Humphrey, 1993. "Cost and technical change: Effects from bank deregulation," Journal of Productivity Analysis, Springer, vol. 4(1), pages 9-34, June.
  14. José Manuel Pastor Monsálvez, 1998. "- Efficiency And Risk Management In Banking Firms: A Method To Decompose Risk," Working Papers. Serie EC 1998-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  15. Rajiv D. Banker & Richard C. Morey, 1986. "The Use of Categorical Variables in Data Envelopment Analysis," Management Science, INFORMS, vol. 32(12), pages 1613-1627, December.
  16. Allen, Linda & Rai, Anoop, 1996. "Operational efficiency in banking: An international comparison," Journal of Banking & Finance, Elsevier, vol. 20(4), pages 655-672, May.
  17. Ana Lozano Vivas & Jesús Tadeo Pastor Ciurana & José Manuel Pastor Monsálvez, 1997. "Efficiency of European banking systems: A correction by environment variables," Working Papers. Serie EC 1997-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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