Meryem Duygun Fethi

Assessing Bank Efficiency and Performance with Operational Research and Artificial Intelligence Techniques: A Survey

This paper presents a comprehensive review of 196 studies which employ operational research (O.R.) and artificial intelligence (A.I.) techniques in the assessment of bank performance. Several key issues in the literature are highlighted. The paper also points to a number of directions for future research. We first discuss numerous applications of data envelopment analysis which is the most widely applied O.R. technique in the field. Then we discuss applications of other techniques such as neural networks, support vector machines, and multicriteria decision aid that have also been used in recent years, in bank failure prediction studies and the assessment of bank creditworthiness and underperformance.

Turkish Banking Recapitalization and the Financial Crisis: An Efficiency and Productivity Analysis

This paper describes procedures in panel data econometrics for efficiency measurement and productivity decomposition in the banking system of an emerging economy with a special focus on the period following a financial crisis. In the recovery from a banking crisis, policymakers attempt to recapitalize the banking system, but this has the potential to impose significant costs. Turkey has restructured the banking system through recapitalization, and this has directly caused the shadow return on equity to turn negative. This negative shadow return on equity is an offset to total factor productivity change, and there is an important policy lesson that a successful recapitalization has a cost in restricting the banking systems overall productivity growth.

Twin deficits phenomenon in small islands: an empirical investigation by panel data analysis

This article empirically investigates the direction of causality between current account balance and the overall budget balance of a selected 24 small island state economies by conducting panel data econometric techniques. The results of both bivariate and pairwise Granger causality tests suggest that there is unidirectional causation which runs from current account balance to the overall budget balance. On the other hand, no evidence has been obtained on the causation which runs from budget balance to current account balance in small island states.

Estimating the size of the Cypriot underground economy: A comparison with European experience

Purpose - To measure the size of underground economy and the amount of tax evasion in Cyprus by employing monetary and non-monetary approaches over the period 1960-2003 and to compare the Cyprus figures with some European experience existing in the literature. Design/methodology/approach - Annual data covering the 1960-2003 period were applied to several approaches for measuring the size of underground economy and the amount of tax evasion in Cyprus. These approaches are: employment discrepancy; simple currency ratio; transaction and currency demand. Findings - On the basis of the results obtained from this study: firstly, in Cyprus the average ratio of the underground economy and tax evasion to official GDP is estimated at 9.41 and 0.31 percent of GDP respectively for the study period, and secondly, in the two time intervals where Cypriots figures are internationally comparable with the often quoted EU underground economy figures, the figures for Cyprus are estimated as 5.96 percent of GDP in 1994-95 and 5.67 percent of GDP in 1996-97 whereas the figures for some European Union (EU) members are 18.05 percent of GDP in 1994-95 and 18.76 percent of GDP in 1996-97. Research limitations/implications - Findings of this study suggest that the issue of the underground economy is still in need of further investigation, firstly, to reach reliable results since each approach has its own strengths and weaknesses and yield different results, secondly, to find out the best method selection on a well-established theory, and finally, to employ reliable data estimating measurement. Practical implications - Both EU and Cypriot authorities can utilize this study to analyse the extent of Cypriot underground economy with respect to the other EU members. Such attempts can be useful in developing policies and implementing actions and measures to eliminate underground economy activities. Originality/value - This study is the first of its kind with recent data to measure the size of underground economy and tax evasion for the Cypriot economy by employing various approaches.

Productivity growth and structural changes in a partially liberalised market: a distance function approach

The question of whether an industry experiencing rapid structural change will demonstrate productivity growth at the same time is unresolved. This paper uses a panel data sample of European airlines over the period of partial market liberalisation (1991–1995) to investigate whether productivity growth was affected in the immediate aftermath of this structural change. The empirical measurement in the paper is based on the comparison of a time-varying stochastic parametric distance function with conventional Data Envelopment Analysis (DEA). This function is used to generate a parametric stochastic estimate of the Malmquist productivity indices. The indices include a returns to scale effect to provide the proper total factor productivity indices. These are compared with the nonparametric estimates. The measures of productivity change are consistent across both methods, with efficiency change dominating technical change in the response to the third liberalisation package in the European airline industry.

Determinants of Bank Efficiency in the Transition Economies in Europe: A Comparison of Frontier Techniques with Panel Data

This study investigates the evolution of banking efficiency of post-communist new EU member countries over a time span 1998 to 2003. In these transition economies major strides were taken during this period to establish functioning market economies and financial systems for their EU membership in 2004. In light of the EU enlargement, it is significant to examine whether significant efficiency improvements were achieved in their banking systems. Adopting the approach by Sickles (2005), we employ a wide range of non-parametric, semi-parametric and parametric tools to evaluate output efficiency of transition banking. In addition, we analyse the impact of several macroeconomic, banking sector specific and bank specific factors on banking efficiency. The results show that the efficiency estimators are sensitive to the choice of utilized methodology. The impact of the various factors however, is relatively stable among the measurement techniques except the impact of macroeconomic factors.

Estimating the size of the Cypriot underground economy

Purpose - To measure the size of underground economy and the amount of tax evasion in Cyprus by employing monetary and non-monetary approaches over the period 1960-2003 and to compare the Cyprus figures with some European experience existing in the literature. Design/methodology/approach - Annual data covering the 1960-2003 period were applied to several approaches for measuring the size of underground economy and the amount of tax evasion in Cyprus. These approaches are: employment discrepancy; simple currency ratio; transaction and currency demand. Findings - On the basis of the results obtained from this study: firstly, in Cyprus the average ratio of the underground economy and tax evasion to official GDP is estimated at 9.41 and 0.31 percent of GDP respectively for the study period, and secondly, in the two time intervals where Cypriots figures are internationally comparable with the often quoted EU underground economy figures, the figures for Cyprus are estimated as 5.96 percent of GDP in 1994-95 and 5.67 percent of GDP in 1996-97 whereas the figures for some European Union (EU) members are 18.05 percent of GDP in 1994-95 and 18.76 percent of GDP in 1996-97. Research limitations/implications - Findings of this study suggest that the issue of the underground economy is still in need of further investigation, firstly, to reach reliable results since each approach has its own strengths and weaknesses and yield different results, secondly, to find out the best method selection on a well-established theory, and finally, to employ reliable data estimating measurement. Practical implications - Both EU and Cypriot authorities can utilize this study to analyse the extent of Cypriot underground economy with respect to the other EU members. Such attempts can be useful in developing policies and implementing actions and measures to eliminate underground economy activities. Originality/value - This study is the first of its kind with recent data to measure the size of underground economy and tax evasion for the Cypriot economy by employing various approaches.

Extreme value theory performance in the event of major financial crises

Current directives issued by the Basel Committee have established value-at-risk (VaR) as the standard measure to quantify market risk. In view of the wide range of applications and regulatory requirements, the development of accurate techniques becomes a topic of prime importance. VaR should protect market participants against sudden jerks in financial markets. While most models achieve that purpose for common everyday movements, they fail to account for unexpected crises. Extreme value theory (EVT) provides a method to estimate VaR at high quantiles of the distribution focusing on unusual circumstances. This paper employs EVT to calculate VaR for ten stock market indices belonging to developed and emerging markets in two different ways: unconditional EVT on raw returns and conditional EVT through quasi-maximum likelihood. The performance of EVT representations during the 2008 turmoil reveals that this methodology could have helped institutions to avoid huge losses arising from market disasters. A simple exercise on the constitution of Regulatory Capital illustrates the advantages of EVT.