Mohamed Shaban

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.

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.

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.