By Jacob Bikker, Jaap W.B. Bos
Monetary literature can pay loads of recognition to the functionality of banks, expressed when it comes to festival, focus, potency, productiveness and profitability. This booklet offers an all-embracing framework for many of the latest theories during this quarter and illustrates those theories with useful purposes. comparing a large box of analysis, the publication describes a revenue maximizing financial institution and demonstrates how numerous widely-used types might be outfitted into this framework. The authors additionally current an summary of the present significant tendencies in banking and relate them to the assumptions of every version, thereby laying off mild at the relevance, timeliness and shelf lifetime of a few of the types. the consequences comprise a collection of innovations for a destiny study schedule. supplying a finished research of financial institution functionality, this publication turns out to be useful for all of these venture examine, or have an interest, in components resembling banking, festival, supervision, financial coverage and monetary balance.
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Additional resources for Bank Performance: A Theoretical and Empirical Framework for the Analysis of Profitability, Competition and Efficiency (Routledge International Studies in Money and Banking)
Now, there is no simultaneous equations bias, and we can easily use the resulting cost minimization model and proﬁt maximization model to interpret the role of market dynamics for bank efﬁciency. 14 Background Bank production In later chapters, we will introduce a proﬁt maximization model for the banking ﬁrm that will serve as the basic framework for this book. Now, we brieﬂy discuss different views on how to select the variables that best describe bank production. The speciﬁcation of inputs to and outputs of bank production is part of an ongoing debate.
Potential solutions to these shortcomings may be a different formulation of the constraint under which banks solve their minimization and maximization problems, respectively. 31 In funding loans, equity may be used as an alternative instead of deposits. Clearly, this would Production of the banking ﬁrm 15 have an impact on both costs and proﬁts. Furthermore, Mester (1996) argues that the inclusion of equity in the analysis may account for differences in bank managers’ risk attitude, since higher levels of equity reduce the risk of default all else being equal.
This is also what happened during the development of Basel II. Experiences with new developments in the market help in developing new regimes, such as the internal-rating-based models, which force less developed banks to improve their risk management further. Basel II has been constructed in such a way that new developments can be implemented quickly, indicated with the evolutionary approach. New steps ahead could be the introduction of estimated correlations among loans and between loans and other ﬁnancial assets, so that diversiﬁcation of risk can be taken into account, allowing the use of, for example, credit risk models.
Bank Performance: A Theoretical and Empirical Framework for the Analysis of Profitability, Competition and Efficiency (Routledge International Studies in Money and Banking) by Jacob Bikker, Jaap W.B. Bos