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Achieving a sustainable cost efficient business model in banking: The case of European banks


14 julio, 2017
10:00

SEMINARIO DEL DOCTORADO DE ESTAD脥STICA, OPTIMIZACI脫N Y MATEM脕TICA APLICADA. CURSO 2016-2017

T铆tulo:聽Achieving a sustainable cost efficient business model in banking: The case of European banks

Ponentes: Ana Lozano鈥怴ivas (University of Malaga, Spain)

Fecha: Viernes聽14 de julio de 2017 a las聽10:00 horas

Lugar: Sala de seminarios,聽Instituto Universitario de Investigaci贸n CIO, Edificio Torretamarit, Universidad Miguel Hern谩ndez聽(Campus de Elche)

Resumen:

Although the business model (BM) is the most fundamental task of the bank鈥檚 management to ensure sustained operation and profitability of a bank, it has become a subject of supervisor鈥檚 scrutiny due to the recent financial crisis when failing banks were rescued with public funds and supervisors were criticized around the world. Since one of the reasonsfor the financial crisis wasthatsome banks had (and still have) unsustainable BMs, sustainable BMs are, for example, on the top of the ECB鈥檚 agenda. Given its relevance, it is important to understand implication that BM characteristics have for bank performance in general and for cost efficiency in particular. Optimizing operating efficiency has become a necessity for the survival of bank. This is one of the top priorities for a bank, especially during times when revenue鈥恎enerating opportunities are sub鈥恛ptimal. This paper usesthe Herfindahl index to measure how concentrate the bank isin items of the asset, funding or income portfolio. We analyze efficiency of bank BM along three business dimensions, viz., assets, funding and income, for the European Banking Industry. We apply recently developed four component heteroskedastic cost model to investigate effects of three business dimensions to time鈥 varying bank cost inefficiency while controlling for bank effects and persistent cost inefficiency. In the proposed model we assume bank鈥恠pecific effects and persistent cost inefficiency random and distributed independently and identically across banks but time鈥恦arying cost inefficiency and noise terms are made heteroscedastic in terms of assets, funding and income diversification for each bank. Note that we are interpreting heteroscedasticity of the noise term as risk thereby meaning whether different forms of diversifications are risk enhancing or risk reducing.


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