Does The Use Of Derivatives Increase Bank Efficiency? Evidence From Latin American Banks

Satisficing data envelopment analysis: a Bayesian approach for peer mining in the banking sector

“…Among the few studies we found to have been dedicated to studying the efficiency measurement in selected Latin American countries, we mention those concerning Mexico (Guerrero & Negrin, 2005;León, 1999;and Taylor et al, 1997), Chile (Fuentes & Vergara, 2007), Brazil (Staub, da Silva e Souza, & Tabak, 2010), and Argentina (Charles, Peretto, & Gherman, 2016). Some of the existing studies (Carvallo & Kasman, 2005;Chortareas, Girardone, & Garza-Garcia, 2010;Forster & Shaffer, 2005;and Rivas, Ozuna, & Policastro, 2006) focused on evaluating the efficiency of the Latin American banks by pulling the samples across a set of countries. Rivas, Ozuna, and Policastro (2006) investigated the effects of the use of derivatives on the bank efficiency in Brazil, Chile, and Mexico and found that bank efficiency was positively associated with the bank size and that the regulatory and the institutional constraints negatively affected the efficiency of Latin American banks.…”

“…Some of the existing studies (Carvallo & Kasman, 2005;Chortareas, Girardone, & Garza-Garcia, 2010;Forster & Shaffer, 2005;and Rivas, Ozuna, & Policastro, 2006) focused on evaluating the efficiency of the Latin American banks by pulling the samples across a set of countries. Rivas, Ozuna, and Policastro (2006) investigated the effects of the use of derivatives on the bank efficiency in Brazil, Chile, and Mexico and found that bank efficiency was positively associated with the bank size and that the regulatory and the institutional constraints negatively affected the efficiency of Latin American banks. Carvallo and Kasman (2005) used a stochastic frontier approach on a sample of 481 banks in 16 Latin American countries to estimate cost inefficiencies and scale and scope economies and found that very small and very large banks tended to be more inefficient when compared to medium-sized banks.…”

The Use of Financial Derivatives in Measuring Bank Risk Management Efficiency: A Data Envelopment Analysis Approach

“…Hence, there is a need to compare derivatives usage and its impacts on efficiency levels across developed and developing countries. Rivas et al (2006) analysed bank efficiency, but they did not isolate the derivative types used by commercial banks. Therefore, there is a need to redefine the derivative instruments and test the relationships between derivatives usage and banks' risk management efficiency.…”

“…For example, Rivas, Ozuna, and Policastro (2006) found that derivative items had no clear effect on the risk management efficiency of banks. However, their discussions on the use of a data envelopment analysis (DEA) approach failed to examine the technical aspects and roles of derivatives in controlling market risk and measuring risk management efficiency using derivatives based inputs and outputs.…”

Enterprise Risk Management in the US Banking Sector Following the Financial Crisis

“…Elsewhere, debate has been held concerning the use of derivatives as a method of ERM in the banking industry. Despite its usefulness in hedging and transferring different bank specific risks and increasing bank efficiency [7], the excessive use of these financial instruments leads to greater systematic risk. By examining the effect of derivative transactions on the interest rate and exchange rate risk exposures of banking firms, Choi and Elyasiani [8] find that the use of derivative contracts creates a significant addi-tional potential systematic risk.…”