The influence of risk-taking on bank efficiency: evidence from Colombia

Miguel Sarmiento () and Jorge Galan

No 1537, Working Papers from Banco de España

Abstract: This paper presents a stochastic frontier model with random inefficiency parameters which captures the influence of risk-taking on bank efficiency and distinguishes the effects among banks with different characteristics. The model is fitted to a 10-year sample of Colombian banks. Cost and profit efficiency are found to be over and underestimated, respectively, when risk measures are omitted or are not accurately modelled. Moreover, the magnitudes at which similar levels of risk affect bank efficiency vary with size and affiliation. In particular, domestic and small Colombian banks benefit more from being highly capitalised, while large and foreign banks benefit from higher exposure to credit and market risk. Holding more liquid assets is found to affect efficiency only at domestic banks. Lastly, we identify some channels that can explain these differences and provide insights for prudential regulation.

Keywords: bank efficiency; Bayesian inference; heterogeneity; random parameters; risktaking; stochastic frontier models (search for similar items in EconPapers)
JEL-codes: C11 C23 C51 D24 G21 G32 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-12
New Economics Papers: this item is included in nep-ban, nep-eff, nep-ifn and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (6)

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... /15/Fich/dt1537e.pdf First version, December 2015 (application/pdf)

Related works:
Journal Article: The influence of risk-taking on bank efficiency: Evidence from Colombia (2017)
Working Paper: The Influence of Risk-Taking on Bank Efficiency: Evidence from Colombia (2015)
Working Paper: The Influence of Risk-Taking on Bank Efficiency: Evidence from Colombia (2015)
Working Paper: The Influence of Risk-taking on Bank Efficiency: Evidence from Colombia (2015)
Working Paper: The Influence of Risk-taking on Bank Efficiency: Evidence from Colombia (2015)
Working Paper: The Influence of Risk-taking on Bank Efficiency: Evidence from Colombia (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1537

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