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- Efficiency And Risk Management In Banking Firms: A Method To Decompose Risk


  • José Manuel Pastor Monsálvez

    (Universitat de València)


Traditional efficiency measures neglect bank risk and, even when risk is accounted for, do not differentiate between the portion subject to managerial control (¿internal¿) versus the portion that is exogenous and is part of a changing environment (¿external¿). This paper proposes a new sequential DEA procedure which decomposes a major indicator of bank risk --provision for loanlosses (PLL)-- into internal and external components. Our decomposition methodology is contrasted with three alternatives to judge how different approaches to this problem may affect the results. The analysis is illustrated by application to the Spanish banking system where deregulation, imposed by the Single Market Program of the European Community, has affected banks¿ conduct in terms of efficiency and risk. Las medidas tradicionales de eficiencia no consideran el riesgo y aquellas que pretenden incluirriesgo no distinguen la parte que sí es debida a la gestión empresarial (interna) de la parte que esexógena a las empresas y que depende del ambiente económico (externa). En este trabajo sepropone un nuevo procedimiento DEA secuencial que descompone uno de los principales indicadoresde riesgo -las provisiones por prestamos de dudoso cobro (PLL)-en sus dos componentes interno yexterno. La metodología propuesta se contrasta con tres alternativas diferentes para valorar sidiferentes enfoques a la medición de este problema pueden afectar a los resultados. El método seilustra con una aplicación para el sistema bancario español, donde la desregulación, impulsada por elMercado Unico ha afectado a la conducta de los bancos en términos de la eficiencia y riesgo.

Suggested Citation

  • 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).
  • Handle: RePEc:ivi:wpasec:1998-10

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    Cited by:

    1. Muliaman D. Hadad & Maximilian J. B. Hall & Wimboh Santoso & Karligash Kenjegalieva & Richard Simper, 2010. "Productivity Changes and Risk Management in Indonesian Banking: An Application of a New Approach to Constructing Malmquist Indices," Discussion Paper Series 2010_04, Department of Economics, Loughborough University, revised Feb 2010.
    2. Jose Pastor & Lorenzo Serrano, 2005. "Efficiency, endogenous and exogenous credit risk in the banking systems of the Euro area," Applied Financial Economics, Taylor & Francis Journals, vol. 15(9), pages 631-649.
    3. Karligash Kenjegalieva & Richard Simper, 2010. "A Productivity analysis of Eastern European banking taking into account risk decomposition and environmental variables," Discussion Paper Series 2010_02, Department of Economics, Loughborough University, revised Jan 2010.
    4. Jose Pastor, 2002. "Credit risk and efficiency in the European banking system: A three-stage analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 12(12), pages 895-911.
    5. Yao, Shujie & Han, Zhongwei & Feng, Genfu, 2008. "Ownership Reform, Foreign Competition, and Efficiency of Chinese Commercial Banks: A Non-Parametric Approach," WIDER Working Paper Series 038, World Institute for Development Economic Research (UNU-WIDER).
    6. Andreas Wutz, 2002. "Wie beeinflusst das Umfeld einer Bank die Effizienz? - Eine DEA-Analyse fuer die Bayerischen Genossenschaftsbanken," Discussion Paper Series 215, Universitaet Augsburg, Institute for Economics.

    More about this item


    Riesgo; entorno; DEA. Risk; environment; DEA.;


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