Download Bank Performance: A Theoretical and Empirical Framework for by Jacob Bikker, Jaap W.B. Bos PDF

By Jacob Bikker, Jaap W.B. Bos

Economic literature can pay loads of awareness to the functionality of banks, expressed when it comes to pageant, focus, potency, productiveness and profitability. This ebook presents an all-embracing framework for a number of the current theories during this zone and illustrates those theories with useful purposes.

Evaluating a huge box of study, the publication describes a revenue maximizing financial institution and demonstrates how a number of widely-used versions will be equipped into this framework. The authors additionally current an outline of the present significant traits in banking and relate them to the assumptions of every version, thereby laying off mild at the relevance, timeliness and shelf lifetime of some of the versions. the consequences comprise a collection of ideas for a destiny learn schedule.

Offering a finished research of financial institution functionality, this booklet comes in handy for all of these project study, or have an interest, in components akin to banking, festival, supervision, financial coverage and fiscal balance.

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Extra info for Bank Performance: A Theoretical and Empirical Framework for the Analysis of Profitability, Competition and Efficiency

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The shareholder) can not insure himself against excessive risk taking by the agent (cf. 1). Third, although incentive problems lead to suboptimal performance by a bank, the extent to which this affects European banking dynamics is unclear. There is little reason to suspect that the incentive problems that can cause a bank to make less profit or experience above-minimum average costs are significantly different from bank to bank, or from country to country. 10 Summing up, even if incentive problems can help explain bank performance, testing empirically whether they can explain differences in bank performance is difficult and to date results have been far from conclusive.

Nevertheless, we expect banks to continue basing their final capital level decisions on their own risk aversion, an optimal funding strategy, buffers allowing them to exploit unexpected investment opportunities and other arguments based on their own independent judgement. Borio et al. (2001) assume that underlying risks are built up during booms instead of during recessions, so that forward-looking banks will reserve capital in time, that is, in a manner that is neutral to the cycle or even countercyclically.

In addition, the resulting efficiency measures would not correct for the possible impact of market power on price-setting. Furthermore, this method requires information on input and output volumes. For banks this is not always a straightforward exercise. For example, a loan can be described by outstanding value or by indebted interest rate. With the help of the envelope theorem the derivation of the dual becomes much easier. For a profit maximization model, Hotelling’s Lemma (see Beattie and Taylor (1985), p.

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