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

Miguel Sarmiento and Jorge Galan ()

Emerging Markets Review, 2017, vol. 32, issue C, 52-73

Abstract: This paper shows evidence on the influence of risk-taking on bank efficiency in emerging markets and identifies heterogeneity in the way risk affects banks with different characteristics. We fit a stochastic frontier model with random inefficiency parameters to a sample of Colombian banks. The model provides accurate cost and profit efficiency estimates. The effects of risk-taking on efficiency vary with size and affiliation. Large and foreign banks benefit more from higher exposure to credit and market risk, while domestic and small banks from being more capitalised. We identify some channels explaining these differences and provide insights for prudential regulation.

Keywords: Bank efficiency; Bayesian inference; Heterogeneity; Random parameters; Risk-taking; Stochastic frontier models (search for similar items in EconPapers)
JEL-codes: C11 C23 C51 D24 G21 G32 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: The influence of risk-taking on bank efficiency: evidence from Colombia (2015) Downloads
Working Paper: The Influence of Risk-Taking on Bank Efficiency: Evidence from Colombia (2015) Downloads
Working Paper: The Influence of Risk-Taking on Bank Efficiency: Evidence from Colombia (2015) Downloads
Working Paper: The Influence of Risk-taking on Bank Efficiency: Evidence from Colombia (2015) Downloads
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