 Controlling for the use of extreme weights in bank efficiency assessments during the financial crisisMette Asmild and Minyan Zhu European Journal of Operational Research, 2016, vol. 251, issue 3, 999-1015 Abstract: 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. Keywords: Data Envelopment Analysis (DEA); Weight restrictions; Banking; Efficiency; Risk (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:251:y:2016:i:3:p:999-1015 DOI: 10.1016/j.ejor.2015.12.021 Access Statistics for this article European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati More articles in European Journal of Operational Research from Elsevier |
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