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How Output Diversification Affects Bank Efficiency And Risk
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Book Synopsis How Output Diversification Affects Bank Efficiency and Risk by : Nikolaos I. Papanikolaou
Download or read book How Output Diversification Affects Bank Efficiency and Risk written by Nikolaos I. Papanikolaou and published by . This book was released on 2013 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how banks have been diversifying away from traditional financial intermediation activity into noninterest income business and how this shift has affected their efficiency and risk-taking behaviour. To this end, we construct a global best-practice efficiency frontier following the Stochastic Frontier Approach and relying on the technique of Battese and Coelli (1995), which permits the estimation of the frontier and of the coefficients of efficiency variables in a single-stage. We opt for an application of this model to the EU-27 countries performing an intra-Union comparison between the old and the new EU members that provides us with substantial information concerning the level of harmonization of the European banking systems. Results indicate that the diversification of bank output enlarges efficiency margins in both cost and profit terms without altering the way banks treat risk. Also, environment identically affects the performance of European banks. By and large, both old and new EU member states follow similar behavioural patterns that are not influenced by product diversification, which reveals a rather harmonized European banking market.
Book Synopsis The Effects of Diversification on Bank Performance from the Perspective of Risk, Return and Cost Efficiency by : Begumhan Ozdincer
Download or read book The Effects of Diversification on Bank Performance from the Perspective of Risk, Return and Cost Efficiency written by Begumhan Ozdincer and published by . This book was released on 2011 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: The question of whether banks should diversify or focus in their activities may have different implications for a market where the banking industry is more settled versus a growth market that has not yet fully saturated. The aim of this paper is to investigate whether diversification pays off, in terms of risk return and cost efficiency, in a market which shows a great deal of growth potential.The results of our empirical study can be summarized as follows: banks that are more diversified have higher return measured as return on solvency as well as increased credit risk. The cost income efficiency of more diversified banks is also higher than more focused ones. Our results also show that diversification does not have a significant impact on the market risk of a bank.
Book Synopsis Stochastic Frontier Analysis by : Subal C. Kumbhakar
Download or read book Stochastic Frontier Analysis written by Subal C. Kumbhakar and published by Cambridge University Press. This book was released on 2003-03-10 with total page 348 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modern textbook presentations of production economics typically treat producers as successful optimizers. Conventional econometric practice has generally followed this paradigm, and least squares based regression techniques have been used to estimate production, cost, profit and other functions. In such a framework deviations from maximum output, from minimum cost and cost minimizing input demands, and from maximum profit and profit maximizing output supplies and input demands, are attributed exclusively to random statistical noise. However casual empiricism and the business press both make persuasive cases for the argument that, although producers may indeed attempt to optimize, they do not always succeed. This book develops econometric techniques for the estimation of production, cost and profit frontiers, and for the estimation of the technical and economic efficiency with which producers approach these frontiers. Since these frontiers envelop rather than intersect the data, and since the authors continue to maintain the traditional econometric belief in the presence of external forces contributing to random statistical noise, the work is titled Stochastic Frontier Analysis.
Book Synopsis Bank Diversification, Market Structure and Bank Risk Taking by : Martin Richard Goetz
Download or read book Bank Diversification, Market Structure and Bank Risk Taking written by Martin Richard Goetz and published by . This book was released on 2015 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies how a bank's diversification affects its own risk taking behavior and the risk taking of competing, nondiversified banks. By combining theories of bank organization, market structure and risk taking, I show that greater geographic diversification of banks changes a bank's lending behavior and market interest rates, which also has ramifications for nondiversified competitors due to interactions in the banking market. Empirical results obtained from the U.S. commercial banking sector support this relationship as they indicate that a bank's risk taking is lower when its competitors have a more diversified branch network. By utilizing the state-specific timing of a removal of intrastate branching restrictions in two identification strategies, I further pin down a causal relationship between the diversification of competitors and a bank's risk taking behavior. These findings indicate that a bank's diversification also impacts the risk taking of competitors, even if these banks are not diversifying their activities.
Book Synopsis Performance of Financial Institutions by : Patrick T. Harker
Download or read book Performance of Financial Institutions written by Patrick T. Harker and published by Cambridge University Press. This book was released on 2000-05-18 with total page 516 pages. Available in PDF, EPUB and Kindle. Book excerpt: The efficient operation of financial intermediaries--banks, insurance and pension fund firms, government agencies and so on--is instrumental for the efficient functioning of the financial system and the fueling of the economies of the twenty-first century. But what drives the performance of these institutions in today's global environment? In this volume, world-renowned scholars bring their expertise to bear on the issues. Primary among them are the definition and measurement of efficiency of a financial institution, benchmarks of efficiency, identification of the drivers of performance and measurement of their effects on efficiency, the impact of financial innovation and information technologies on performance, the effects of process design, human resource management policies, as well as others.
Book Synopsis The Belt and Road Strategy in International Business and Administration by : Liu, Wei
Download or read book The Belt and Road Strategy in International Business and Administration written by Liu, Wei and published by IGI Global. This book was released on 2019-04-12 with total page 292 pages. Available in PDF, EPUB and Kindle. Book excerpt: International business strategies orbit around the idea of strengthening partnerships with other countries. Developing new and innovative opportunities to connect neighboring countries bodes well for those countries and the entire world. The Belt and Road Strategy intends to do just that by strengthening partnerships and constructing a comprehensive and multilevel interconnected network to achieve pluralistic, independent, balanced, and sustainable development. The Belt and Road Strategy in International Business and Administration is a vital collection of information that discusses one of most important programs embodying economic, regional, and political demands in the Asian and European environment. Featuring research on topics such as business development, business law, and multinational enterprise, this book is ideally designed for government officials, professionals, researchers, students, and professors seeking coverage on the theoretical and practical contributions of international business.
Book Synopsis The Oxford Handbook of Banking by : Allen N. Berger
Download or read book The Oxford Handbook of Banking written by Allen N. Berger and published by Oxford University Press. This book was released on 2010 with total page 1033 pages. Available in PDF, EPUB and Kindle. Book excerpt: This handbook provides an overview and analysis of state-of-the-art research in banking written by researchers in the field. It includes abstract theory, empirical analysis, and practitioner and policy-related material.
Book Synopsis A Study of the Impact of Geographic, Activity, and Asset Diversification on Community Bank Risk-adjusted Performance During the Financial Crisis by : Kathy M. Estes
Download or read book A Study of the Impact of Geographic, Activity, and Asset Diversification on Community Bank Risk-adjusted Performance During the Financial Crisis written by Kathy M. Estes and published by . This book was released on 2014 with total page 252 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many U.S. commercial banks failed or experienced weak or negative earnings during the recent financial crisis. The most costly failures from 2007 through 2011 were those in institutions greater than $1 billion in total assets; however, the majority of bank failures (about 85%) were of institutions less than $1 billion. These represent community banks that are instrumental in small business lending and employment growth. Community banks face different risks and performance challenges than their largest counterparts, including the inability to achieve economies of scale and scope enjoyed by the largest institutions and exclusion from "too-big-to-fail" status. The unique challenges facing these institutions, coupled with the large number of recent failures, motivate research into the potential strategies these bank managers can use to improve risk-adjusted performance. This research purposed to study the relationship between three potential diversification strategies and their impact on community bank risk-adjusted performance during the recent financial crisis. Understanding these relationships could improve management's decision-making, allowing them to choose strategies that potentially mitigate their risk during a severe economic downturn. Using financial and deposit data available from industry regulators, Herfindahl-Hirschman Indexes (HHIs) were calculated as proxies for geographic, activity, and asset diversification. Multiple linear regression models for each of five years (2007-2011) were used to consider the impact of the diversification variables, as well as several control variables, on risk-adjusted return on assets. The results show that greater diversification in all three areas has a positive relationship with performance; however, only the asset diversification relationship is significant. These results show that, to the extent possible for community banks, greater diversification can improve risk-adjusted performance.
Book Synopsis Bovernance and Bank Valuation by : Gerard Caprio
Download or read book Bovernance and Bank Valuation written by Gerard Caprio and published by World Bank Publications. This book was released on 2003 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Which public policies and ownership structures enhance the governance of banks? This paper constructs a new database on the ownership of banks internationally and then assesses the ramifications of ownership, shareholder protection laws, and supervisory/regulatory policies on bank valuations. Except in a few countries with very strong shareholder protection laws, banks are not widely held, but rather families or the State tend to control banks. We find that (i) larger cash flow rights by the controlling owner boosts valuations, (ii) stronger shareholder protection laws increase valuations, and (iii) greater cash flow rights mitigate the adverse effects of weak shareholder protection laws on bank valuations. These results are consistent with the views that expropriation of minority shareholders is important internationally, that laws can restrain this expropriation, and concentrated cash flow rights represent an important mechanism for governing banks. Finally, the evidence does not support the view that empowering official supervisory and regulatory agencies will increase the market valuation of banks"--NBER website
Book Synopsis Diversification, Bank Risk and Performance by : Jarrett Emory Kotrozo
Download or read book Diversification, Bank Risk and Performance written by Jarrett Emory Kotrozo and published by . This book was released on 2007 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this paper is to continue the discussion regarding the diversification of both banking activities and geographical diversification as it relates to performance and risk. Herfindahl indices are used to measure diversification and a number of risk and performance measures are tested including Tobin's q, annualized stock returns and total risk. The results suggest the type of diversification can have varying impacts on both performance and risk. Specifically, banks focused in their revenue activities have higher levels of q than those diversifying their activities. Banks which are more geographically focused, however, have lower annualized stock returns. Banks with an activity focus or those who are geographically diversified also experience higher relative levels of risk. These results have potential implications for bank managers, shareholders and monitors/regulators.
Book Synopsis International Convergence of Capital Measurement and Capital Standards by :
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Risks of Financial Institutions by : Mark Carey
Download or read book The Risks of Financial Institutions written by Mark Carey and published by University of Chicago Press. This book was released on 2007-11-01 with total page 669 pages. Available in PDF, EPUB and Kindle. Book excerpt: Until about twenty years ago, the consensus view on the cause of financial-system distress was fairly simple: a run on one bank could easily turn to a panic involving runs on all banks, destroying some and disrupting the financial system. Since then, however, a series of events—such as emerging-market debt crises, bond-market meltdowns, and the Long-Term Capital Management episode—has forced a rethinking of the risks facing financial institutions and the tools available to measure and manage these risks. The Risks of Financial Institutions examines the various risks affecting financial institutions and explores a variety of methods to help institutions and regulators more accurately measure and forecast risk. The contributors--from academic institutions, regulatory organizations, and banking--bring a wide range of perspectives and experience to the issue. The result is a volume that points a way forward to greater financial stability and better risk management of financial institutions.
Book Synopsis The Effects of Focus and Diversification on Bank Risk and Return by : Viral V. Acharya
Download or read book The Effects of Focus and Diversification on Bank Risk and Return written by Viral V. Acharya and published by . This book was released on 2008 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study empirically the effect of focus (specialization) vs. diversification on the return and the risk of banks using data from 105 Italian banks over the period 1993 1999. Specifically, we analyze the tradeoffs between (loan portfolio) focus and diversification using a unique data set that is able to identify individual bank loan exposures to different industries, to different sectors, and to different geographical regions. Our results are consistent with a theory that predicts a deterioration in bank monitoring quality at high levels of risk and a deterioration in bank monitoring quality upon lending expansion into newer or competitive industries. We find that industrial loan diversification reduces bank return while endogenously producing riskier loans for all banks in our sample, this effect being most powerful for high-risk banks. Sectoral loan diversification only produces an inefficient risk return trade-off for banks with very high levels of risk. Geographical diversification on the other hand does result in an improvement in the risk return tradeoff for banks with low levels of risk. Overall, our results suggest that diversification of bank assets is not guaranteed to produce more performance efficient and/or safer banks.
Book Synopsis Bank Profitability and Financial Stability by : Ms.TengTeng Xu
Download or read book Bank Profitability and Financial Stability written by Ms.TengTeng Xu and published by International Monetary Fund. This book was released on 2019-01-11 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze how bank profitability impacts financial stability from both theoretical and empirical perspectives. We first develop a theoretical model of the relationship between bank profitability and financial stability by exploring the role of non-interest income and retail-oriented business models. We then conduct panel regression analysis to examine the empirical determinants of bank risks and profitability, and how the level and the source of bank profitability affect risks for 431 publicly traded banks (U.S., advanced Europe, and GSIBs) from 2004 to 2017. Results reveal that profitability is negatively associated with both a bank’s contribution to systemic risk and its idiosyncratic risk, and an over-reliance on non-interest income, wholesale funding and leverage is associated with higher risks. Low competition is associated with low idiosyncratic risk but a high contribution to systemic risk. Lastly, the problem loans ratio and the cost-to-income ratio are found to be key factors that influence bank profitability. The paper’s findings suggest that policy makers should strive to better understand the source of bank profitability, especially where there is an over-reliance on market-based non-interest income, leverage, and wholesale funding.
Book Synopsis The Impacts of Risk-Taking Behaviour and Competition on Technical Efficiency by : Yong Tan
Download or read book The Impacts of Risk-Taking Behaviour and Competition on Technical Efficiency written by Yong Tan and published by . This book was released on 2017 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tests the impact of risk and competition on efficiency in the Chinese banking industry over the period 2003-2013. Comprehensive types of risk-taking behaviour are considered including credit risk, liquidity risk, capital risk, and insolvency risk. Competition is measured by the Lerner index. The results are cross-checked using an alternative econometric technique as well as an alternative competition indicator. The findings show that the technical and pure technical efficiencies of Chinese commercial banks are significantly and negatively affected by liquidity risk. They further show that greater competition precedes declines in technical and pure technical efficiencies of Chinese commercial banks. The results suggest that Chinese bank efficiency is significantly affected by bank diversification, banking sector development, stock market development, inflation and GDP growth rate. The findings also indicate that, compared to state-owned commercial banks, joint-stock commercial banks and city commercial banks have lower technical and pure technical efficiencies.
Book Synopsis Does Diversification Improve the Performance of German Banks? Evidence from Individual Bank Loan Portfolios by : Evelyn Hayden
Download or read book Does Diversification Improve the Performance of German Banks? Evidence from Individual Bank Loan Portfolios written by Evelyn Hayden and published by . This book was released on 2016 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Should banks be diversified or focused? Does diversification indeed lead to enhanced performance.
Book Synopsis Revisiting Risk-Weighted Assets by : Vanessa Le Leslé
Download or read book Revisiting Risk-Weighted Assets written by Vanessa Le Leslé and published by International Monetary Fund. This book was released on 2012-03-01 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we provide an overview of the concerns surrounding the variations in the calculation of risk-weighted assets (RWAs) across banks and jurisdictions and how this might undermine the Basel III capital adequacy framework. We discuss the key drivers behind the differences in these calculations, drawing upon a sample of systemically important banks from Europe, North America, and Asia Pacific. We then discuss a range of policy options that could be explored to fix the actual and perceived problems with RWAs, and improve the use of risk-sensitive capital ratios.
