Determining management behaviour in European banking

Williams, Jonathan

doi:10.1016/j.jbankfin.2003.09.010

Cited by 230 publications

(283 citation statements)

References 44 publications

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“…Instead, inefficient banks appear to be less risky (skimping). By contrast, using a slightly different sample in Europe, Williams (2004) finds that poorly managed banks tend to make more poor quality loans, consistent with the U.S. evidence. More recently, Fiordelisi et al (2011) suggest that banks lagging behind in their efficiency levels might expect higher risks in the near future (moral hazard).…”

Section: Introductionsupporting

confidence: 61%

Controlling for the use of extreme weights in bank efficiency assessments during the financial crisis

Asmild

Zhu

2016

European Journal of Operational Research

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We propose a method for bank efficiency assessment, based on weight restricted DEA, that limits banks' abilities to use extreme weights, corresponding to extreme judgements of the risk adjusted prices on funding sources and assets. Based on a data set comprising the largest European banks during the financial crisis, we illustrate the impact of the proposed weight restrictions in two different efficiency models; one related to banks' funding mix and one related to their asset mix. The results show that using a more balanced set of weights tend to reduce the estimated efficiency scores more for those banks which were bailed out during the crisis, which confirms the potential bias within standard DEA that does not control for extreme weights applied by highly risky banks. We discuss the use of the proposed method as a regulatory tool to constrain discretion when complying with regulatory capital benchmarks such as the Basel regulatory capital ratios.

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Section: Introductionsupporting

confidence: 61%

Controlling for the use of extreme weights in bank efficiency assessments during the financial crisis

Asmild

Zhu

2016

European Journal of Operational Research

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“…In addition, we employ the overall financial freedom index estimated by the Heritage Fiordelisi et al, 2011, Fiordelisi andMolyneux, 2010;Casu and Girardone, 2009;Williams, 2004). Specifically, in order to disentangle the inter-temporal relationships between competition and stability, we estimate the following equation:…”

Section: Variablesmentioning

confidence: 99%

Competition and financial stability in European cooperative banks

Fiordelisi

Mare²

2014

Journal of International Money and Finance

247

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Cooperative banks are a driving force for socially committed business at a local level accounting for around one fifth of the European Union (EU) bank deposits and loans. Despite their importance, little is known about the relationship between bank stability and competition for these small credit institutions. Does competition affect the stability of cooperative banks? Does banks' financial stability increase/decrease in case of higher competition? We assess the dynamic relationship between competition and bank soundness (both in the short and long run) in the European cooperative banking between 1998 and 2009. We obtain three main results. First, we support the competition-stability view proposed by Boyd and De Nicolò (2005). Bank market power negatively Granger-cause banks' soundness meaning that there is a positive relationship between competition and stability. Second, we provide evidence of the negative impact of the 2007-2009 financial crisis on the individual risk exposure of cooperative banks although it does not change the relationship between competition and stability. Third, we show that herding behaviour affects positively bank soundness. Our findings have important policy implications for designing and implementing regulations that enhance the overall stability of the financial system. JEL-Classification: C23, G21

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“…NPLs are one of the major causes of economic stagnation problems and can lead to efficiency problems of banks and the banking sector. According to Berger -DeYoung (1997), Williams (2004) and Rossi et al (2005), we approach the matter in a direct way by linking managerial behaviour with the bank's efficiency. In this paper, we used regression analysis to examine how major structural characteristics of banks affect the efficiency of banks' lending behaviour.…”

Section: Acta Oeconomica 65 (2015)mentioning

confidence: 99%

Loan efficiency in the Visegrad countries

Kočišová

2015

Acta Oeconomica

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Financial markets in the Visegrad countries have undergone several changes in lending business over the past decade. This study evaluates the effi ciency of the largest commercial banks by focusing on their lending decisions using Data Envelopment Analysis. First, we defi ne the concept of effi ciency, then we analyse loan effi ciency between 2007 and 2013. The results indicate that average effi ciency declined. When we studied the loan effi ciency in each country separately, we found that Hungarian banks had the lowest effi ciency while the highest effi ciency was achieved mainly by Czech banks. The results of the study also suggest that effi ciency is positively related to profi tability and capital adequacy, and negatively related to the share of non-performing loans, which confi rms the bad management hypothesis. INTRODUCTIONOver the past decade, financial markets in the Visegrad countries (V4) have undergone several changes that have significantly affected the performance of their banks. One of the consequences of the global financial crisis was the growth of non-performing loans (NPL) and the growth of their share on total gross loans. For example, the average share of NPL in banks, covered by this paper, rose from 5 to 10% between 2007 and 2013. The subject of NPLs has attracted more attention in recent years. Several studies examined bank failures and found that assets quality was an indicator of insolvency (Demirgüç-Kunt 1989; Barr -Siems 1994) since banks had a high level of NPLs before bankruptcy. These authors found that when the volume of bad loans increased, the banks' ability to increase their performance declined. Besides NPLs, one important aspect in the measurement of bank performance is efficiency. This affects the stability of the banking industry and thus the efficiency of the entire financial system. Banking sectors are still the primary form of financial intermediation in the V4 1 countries, being the major channel for the mobilisation of domestic savings and their transformation into a major source of external capital to firms. Banks are key players in the payment systems; therefore, the development of the banking sector's efficiency is crucial for the growth of economies in the V4 countries.According to Resti (1996), at the macroeconomic level, bank efficiency represents a socially optimal objective. It reduces the costs of financial intermediation, the transfer of funds from savers to producers. Consequently, central banks are seriously interested in the accomplishment of operating practices and market equilibrium that grant the maximum productive efficiency, provided that this does not result in a monopoly, which would expropriate consumers from the advantages due to the reduction in average costs. Of course, given some crisis situations, it may be optimal to postpone the search for efficiency, concentrating on the defence of the system stability and preventing dangerous "domino effects" that can arise, when the less productive institutions are forced to quit the market in a traumatic...

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Determining management behaviour in European banking

Cited by 230 publications

References 44 publications

Controlling for the use of extreme weights in bank efficiency assessments during the financial crisis

Controlling for the use of extreme weights in bank efficiency assessments during the financial crisis

Competition and financial stability in European cooperative banks

Loan efficiency in the Visegrad countries

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