Data transformations in data envelopment analysis cone ration envelopment approaches for monitoring bank performances

Data transformations in data envelopment analysis cone ration envelopment approaches for monitoring bank performances

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Article ID: iaor19991262
Country: Netherlands
Volume: 98
Issue: 2
Start Page Number: 250
End Page Number: 268
Publication Date: Apr 1997
Journal: European Journal of Operational Research
Authors: , , , ,
Keywords: financial, performance, statistics: data envelopment analysis
Abstract:

Cone ratio DEA (Data Envelopment Analysis) models are suggested for monitoring and/or early warning systems to be used by bank regulatory agencies. Illustrative examples are developed from data on 1984 and 1985 performances of the 16 largest banks in Texas. Five large non-Texas banks are introduced as ‘excellent performers’ to help evaluate these Texas banks in terms of their ‘risk coverage’ as well as ‘efficiency’. Cone ratio envelopments are used to transform original data in order to reflect performances by the non-Texas banks with respect to ‘risk coverage’ as well as ‘efficiency’. Formulas for transforming to and from the original data are supplied with accompanying explanations and interpretations which include comparisons with the ‘risk-adjusted capital’ and ‘risk-coverage’ allowances formulas that have been adopted recently by US Government (and other) regulators in banking (and insurance) in conformance with the ‘Basel Agreement’ of 1988.

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