Diego A. Restrepo-Tobón

Are All U.S. Credit Unions Alike? A Generalized Model of Heterogeneous Technologies with Endogenous Switching and Correlated Effects

Credit unions differ in the types of financial services they offer to their members. This paper explicitly models this observed heterogeneity using a generalized model of endogenous ordered switching. Our approach captures the endogenous choice that credit unions make when adding new products to their financial services mix. Failure to do so is likely to yield biased and inconsistent estimates. The model that we develop also allows for the dependence between unobserved effects and regressors in both the selection and outcome equations and can accommodate the presence of predetermined covariates in the model. We use this model to estimate returns to scale for U.S. retail credit unions from 1996 to 2011. We document strong evidence of persistent technological heterogeneity among credit unions offering different financial service mixes, which, if ignored, can produce quite misleading results. Employing our generalized model, we find that credit unions of all types exhibit substantial economies of scale.

Profit Efficiency of U.S. Commercial Banks: A Decomposition

This paper presents new evidence regarding the relation between profit, revenue, and cost efficiencies of U.S. commercial banks. Building on the widely used nonstandard profit function (NSPF) approach, we show (i) why estimation of NSPF would be wrong and (ii) how revenue and cost efficiencies contribute to profit efficiency. Using data from U.S. commercial banks from 2001 to 2010, we find that losses due to profit inefficiency represents about 8.2% of banks’ equity of which 3.5% is due to revenue inefficiency and 4.7% to cost inefficiency. Cost efficiency weighs more than revenue efficiency in estimated profit efficiency. However, compared with cost inefficiency, revenue inefficiency affects more overall profitability.

Are U.S. Commercial Banks Too Big

This paper presents new nonparametric measures of scale economies and TFP growth for U.S. banks. Unlike previous studies that use fully nonparametric models, our approach controls for time-invariant unobserved heterogeneity among banks in estimating returns to scale, TFP growth and its components. Using data for U.S. commercial banks from 2001 to 2010, we find evidence of significant scale economies across the entire bank size distribution. Returns to scale are persistent over time, decrease with bank size, and contribute significantly to TFP growth. Our results indicate that almost all small and medium size banks and most of the largest banks have strong economic incentives to keep growing. Thus, the consolidation of the banking industry is unlikely to retrench in the near future.

Heterogeneous credit union production technologies with endogenous switching and correlated effects

ABSTRACT Credit unions differ in the types of financial services they offer to their members. This article explicitly models this observed heterogeneity using a generalized model of endogenous ordered switching. Our approach captures the endogenous choice that credit unions make when adding new products to their financial services mix. The model that we consider also allows for the dependence between unobserved effects and regressors in both the selection and outcome equations and can accommodate the presence of predetermined covariates in the model. We use this model to estimate returns to scale for U.S. retail credit unions from 1996 to 2011. We document strong evidence of persistent technological heterogeneity among credit unions offering different financial service mixes, which, if ignored, can produce quite misleading results. Employing our model, we find that credit unions of all types exhibit substantial economies of scale.

A Proportional Scale-Invariant Measurement of Heterogeneous Directional Distances to the Technological Frontier

We consider a stochastic multiplicative-directional-distance-function-based formulation of the production technology in the presence of bad outputs. In contrast to the popular additive directional distance function, our approach preserves the highly desired scale invariance property of the proportional radial distance function and can easily assume popular translog specification. Our model can also meaningfully accommodate technological heterogeneity across individual firms by letting the direction in which the distance to frontier is measured be an unknown function of the firm’s idiosyncratic characteristics reflective of the heterogeneous economic environment in which it operates. To mitigate the uncertainty associated with an arbitrary choice of the direction, we rely on a data-driven selection method to determine these varying heterogeneous directional vectors for individual firms. We showcase practical advantages of the proposed model by estimating the production technology of U.S. commercial banks in the presence of undesirable non-performing loans during the 2001–2010 period.

Medición del valor en riesgo de portafolios de renta fija usando modelos multifactoriales dinámicos de tasas de interés

En este trabajo se evalua el desempeno de tres modelos dinamicos de la estructura a plazos de tasas ˜ de interes para estimar el valor en riesgo (VaR, por su traduccion de Value at Risk) de portafolios de renta fija. De esta forma, se encuentra que el modelo de Diebold, Rudebusch y Aruoba se desempena˜ adecuadamente respecto a las pruebas de backtesting del VaR, mientras que el modelo de Diebold y Li y un modelo afin de no arbitraje exhiben un pobre desempeno. Los tres modelos asumen que la matriz de ˜ varianzas y covarianzas de los factores latentes a cada modelo es constante, lo cual limita su utilidad en el calculo del VaR. Por lo tanto, modelos que relajen este supuesto deberian ofrecer un mejor desempeno˜ y ser mas adecuados para la gestion del riesgo de portafolios de renta fija.

Affine Term Structure Models: Forecasting the Colombian Yield Curve

Modelar de forma superior la curva de rendimientos es util para valoracion de activos, planeacion financiera y administracion de riesgos. En este articulo se estiman cinco modelos afines de la estructura a plazos colombiana usando datos diarios. Se encuentra que un modelo de tres factores tiene un desempeno superior a los demas modelos para pronosticos intra-muestrales y para pronosticos (fuera de la muestra) con horizontes de uno y cinco dias. Los factores del modelo se asemejan a sus contrapartes empiricas del nivel, la pendiente y la curvatura de la curva de rendimientos colombiana.

Financial Education Programs in Colombia: Challenges in Assessing Their Effectiveness

Abstract: Financial education programs enjoy widespread governmental and financial industry support. They are considered an important tool for improving financial literacy, encouraging financial inclusion, and increasing consumer financial protection. Therefore, assessing their effectiveness is important to guarantee that public and private resources are allocated wisely. As we highlight in this paper, the available empirical literature casts serious doubts on the effectiveness of those programs in achieving their main objectives. Even properly designed—from an impact evaluation viewpoint—financial education programs fail to deliver long-run effects on individuals’ financial literacy or financial choices. We highlight the challenges to evaluate the impact of financial education programs and, consequently, their merits. We showcase the international experience in assessing the effectiveness of these programs and draw lessons for Colombia. We offer a set of recommendations regarding the minimum set of attributes that financial education programs should have to allow serious policy evaluation.