foreign bank entry deregulation and bank efficiency lessons from the australian experience abstract this study considers the impact of foreign bank entry on banking efficiency in australia during the post deregulation period 1988 2001 using data envelopment analysis malmquist indices and stochastic frontier analysis we find foreign banks more efficient than domestic banks which however did not result in superior profits major australian banks have used size as a barrier to entry to new entrants furthermore bank efficiency has increased post deregulation and the competition resulting from diversity in bank types was important to prompt efficiency improvements finally the recession of the early 1990s resulted in a distinct shift in the process of efficiency changes

statistical inference for aggregates of farrell type efficiencies in this study we merge results of two recent directions in efficiency analysis research aggregation and bootstrap applied as an example to one of the most popular point estimators of individual efficiency the data envelopment analysis dea estimator a natural context of the methodology developed here is a study of efficiency of a particular economic system e g an industry as a whole or a comparison of efficiencies of distinct groups within such a system e g regulated vs non regulated firms or private vs public firms our methodology is justified by the neoclassical economic theory and is supported by carefully adapted statistical methods copyright 2007 john wiley sons ltd

diversification in banking is noninterest income the answer this paper assesses potential diversification benefits in the u s banking industry from the steady shift toward activities that generate fee income trading revenue and other types of noninterest income in the aggregate declining volatility of net operating revenue reflects reduced volatility of net interest income not diversification benefits from noninterest income which is quite volatile and increasingly correlated with net interest income at the bank level greater reliance on noninterest income particularly trading revenue is associated with lower risk adjusted profits and higher risk this suggests few obvious diversification benefits from the ongoing shift toward noninterest income

foreign bank diversification and efficiency prior to and during the financial crisis does one business model fit all diversified and focused business models may affect foreign bank efficiency differently we investigate whether there is an optimal business model along three business dimensions assets funding and income and which business model is optimal for foreign banks in a financial center we apply recently developed non parametric methods with bootstrap to estimate group efficiency to test for differences across groups and finally to analyze the link between bank efficiency and diversification measures using luxembourg bank data that include the financial crisis we find that there is no unique business model the most efficient business model appears to be a focused asset funding and income strategy banks organizational forms play a role branches may be preferable to subsidiaries prior to the financial crisis whereas bank subsidiaries perform better than branches during the financial crisis however branches diversified in assets funding and income exploit efficiency advantages during the financial crisis

on the optimal order of natural resource use when the capacity of the inexhaustible substitute is limited consider a general equilibrium framework where the marginal cost of extraction from several deposits of an exhaustible resource is constant in terms of an inexhaustible perfect substitute and differs between deposits the instantaneous rate of production form the inexhaustible resource is subject to a capacity constraint

the role of technology in sustaining agriculture and the environment abstract visions of sustainable development often leave unanswered the question what actions taken by the current generation will ensure that future generations can meet their economic and environmental needs in this context we assess the role of technology in steering agriculture along a more sustainable path from the agricultural sector s perspective this requires an optimal investment plan for a nation s stock of environmental assets that accounts for an intergenerational fulfillment of sustainability s dual goals 1 satisfying food and fiber needs at reasonable costs to consumers and 2 providing environmental service flows in reviewing agricultural indicators to assess the nation s performance in meeting these goals we find productivity growth has increased while rates of soil erosion wetland conversion and pesticide application have declined however individuals continue to demand more environmental services while private markets undersupply environmental services the capacity of the agricultural sector to meet food and fiber and environmental service demands partially depends on the availability and adoption of new technology several market impediments explain the undersupply of sustainable technologies 1 firms cannot fully appropriate rents from technology development 2 success may vary with farm structure 3 the heterogeneity of the resource base influences adoption and 4 farmers cannot capture the benefits of environmental services to address these market failures sustainable agriculture policy should 1 support research and development in sustainable technologies and provide incentives to encourage adoption 2 ensure that conservation efforts reflect the efficient and sustainable allocation of environmental assets and 3 legitimize markets for foods produced under more sustainable practices

a test of the theory of exhaustible resources an empirical test of the theory of exhaustible resources requires an estimate of the time path of the shadow price of the unextracted resource that generally is not observable because of the prevalence of vertical integration in natural resource industries in this paper we use duality theory to derive an econometric model that provides a statistical test of the theory of exhaustible resources a restricted cost function is used to obtain estimates of the shadow prices of unextracted resources the procedure is illustrated with data for the canadian metal mining industry for this industry the empirical implications of the theory of exhaustible resources are strongly rejected

the alberta dilemma optimal sharing of a water resource by an agricultural and an oil sector we fully characterize the optimal time paths of production and water usage by an agricultural and an oil sector that share a limited water resource we show that for any given water stock if the oil stock is sufficiently large it will become optimal to have a phase during which the agricultural sector is inactive followed by a phase during which both sectors are active again the agricultural sector will always be active in the end as the oil stock is depleted if agriculture is not constrained by the given natural inflow of water then oil extraction will always end with a phase during which oil production follows a pure hotelling path otherwise oil production never follows a pure hotelling path because its full marginal cost must always reflect not only the imputed rent on the finite oil stock but also the positive opportunity cost of water usage the case of oil and agriculture sharing a water resource is but one example our analysis provides a framework to generalize the hotelling rule to other cases where the full marginal opportunity cost of extracting a nonrenewable resource depends on the endogenous activity of some other sector of the economy

the diversification and financial performance of us credit unions abstract for us credit unions revenue from non interest sources has increased significantly in recent years we investigate the impact of revenue diversification on financial performance for the period 1993 2004 the impact of a change in strategy that alters the share of non interest income is decomposed into a direct exposure effect reflecting the difference between interest and non interest bearing activities and an indirect exposure effect which reflects the effect of the institution s own degree of diversification on both risk adjusted and unadjusted returns measures a positive direct exposure effect is outweighed by a negative indirect exposure effect for all but the largest credit unions this may imply that similar diversification strategies are not appropriate for large and small credit unions small credit unions should eschew diversification and continue to operate as simple savings and loan institutions while large credit unions should be encouraged to exploit new product opportunities around their core expertise

privatization matters bank efficiency in transition countries abstract to investigate the impact of bank privatization in transition countries we take the largest banks in six relatively advanced countries namely bulgaria the czech republic croatia hungary poland and romania income and balance sheet characteristics and efficiency measures computed from stochastic frontiers are compared across four bank ownership types our empirical results support the hypotheses that foreign owned banks are most efficient and government owned banks are least efficient in addition the importance of attracting a strategic foreign owner in the privatization process is confirmed however counter to the conjecture that foreign banks cherry pick the most profitable opportunities we find that domestic banks have a local advantage in pursuing fee for service business finally we show that both the method and the timing of privatization matter to performance specifically voucher privatization does not lead to increased efficiency and early privatized banks are more efficient than later privatized banks even though we find no evidence of a selection effect

the performance of universal banks evidence from switzerland abstract this paper examines the performance of swiss banks from 1996 to 1999 using a broad definition of bank output we find evidence of large relative cost and profit inefficiencies in swiss banks a more narrow definition that focuses on only traditional activities leads to efficiency estimates that are even lower we also find evidence of economies of scale for small and mid size banks but little evidence that significant scale economies remain for the very largest banks finally evidence on scope economies is weak for the largest banks that are involved in a wide variety of financial activities taken together these results suggest few obvious benefits from the trend toward larger universal banks in switzerland

are mergers beneficial to consumers evidence from the market for bank deposits the general conclusion of the empirical literature is that in market consolidation generates adverse price changes harming consumers previous studies however look only at the short run pricing impact of consolidation ignoring effects that take longer to materialize using a database that includes detailed information on the deposit rates of individual banks in local markets for different categories of depositors we investigate the long run price effects of mergers we find strong evidence that although consolidation does generate adverse price changes these are temporary in the long run efficiency gains dominate over the market power effect leading to more favorable prices for consumers jel g21 g34 l1

modeling nonrenewable resources use with multiple demands and multiple sources the theoretical literature following hotelling j polit econ 39 137 175 1931 assumed that all nonrenewable resource needs are satisfied by one type of resource e g oil extractible at different per unit costs this formulation implicitly assumes that all users are the same distance from each resource pool that all users can switch costlessly from one type of resource to another e g liquid fossil fuels to coal or vice versa and that all users are subject to the same regulations these assumptions imply as herfindahl extractive resources and taxation university of wisconsin press madison pp 63 90 1967 showed that in competitive equilibrium all users will exhaust a lower cost resource completely before beginning to extract a higher cost resource simultaneous extraction of different grades of oil or of oil and coal should never occur in trying to apply the single demand curve model during the last twenty years several teams of authors have independently found a need to generalize it to account for users differing in their 1 location 2 resource needs or 3 regulatory environment each research team found that herfindahl s strong unrealistic conclusion disappears in the generalized model in its place a weaker herfindahl result emerges since each research team focussed on a different application however it has not always been clear that everyone has been describing the same generalized model the goal in this paper is to integrate the findings of these teams and to present an easily accessible generalization of the nonrenewable resource model to multiple demand curves

bank capitalization and cost evidence of scale economies in risk management and signaling we amend the standard cost model to account for the role of financial capital in banking the cost function is conditioned on the level of capital but we model the demand for financial capital so that it can serve as a cushion against insolvency for potentially risk averse managers and as a signal of risk for less informed outsiders scale economies are then computed without assuming that the bank chooses a level of capitalization that minimizes cost we find evidence of substantial scale economies and that bank managers are risk averse and use the level of financial capital to signal the level of risk

intertemporal depletion of resource sites by spatially distributed users mineral deposits and other exhaustible resources are scattered around the globe as are their users yet the theory for analyzing depletion of such resources assumes that all resource sites and all users are located in the same place when applying the theory therefore one is forced to disregard what often seems to be an important real world consideration our purpose here is to generalize harold hotelling s 1931 theory of exhaustible resources to accommodate situations in which resource sites and their users are spatially distributed our analysis has many applications it can be applied to a conventional exhaustible resource like oil alternatively it can be applied to an unconventional exhaustible resource like scarce landfill space shipments of solid waste to landfills in other states or countries have become a prominent public policy issue eduardo ley et al 2000 finally our analysis can be applied in situations where the space reflects not geographical location but characteristics of the resource e g the sulfur content hardness and so forth of coal which users find distinctive 2 only two theoretical papers in resource economics have introduced spatial considerations 3 jean jacques laffont and michel moreaux 1986 studied the extraction of resources from sites located along a line segment with all users at one end charles kolstad 1994 was the first to consider spatially distributed users in his formulation consumers are distributed uniformly along a line segment with resource sites at each end kolstad s approach although innovative requires that the set of users be parti

specialization and non renewable resources ricardo meets ricardo abstract the one demand hotelling model fails to explain the observed specialization of non renewable resources we develop a model with multiple demands and resources to show that specialization of resources according to demand is driven by ricardian comparative advantage while the order of resource use over time is determined by ricardian absolute advantage an abundant resource with absolute advantage in all demands must be initially employed in all demands when each resource has an absolute advantage in some demand no resource may be used exclusively the two by two model is characterized resource and demand specific taxes are shown to have significant substitution effects

the time path of scarcity rent in the theory of exhaustible resources there is now a consensus in the literature on resource economics that a depletable resource should command a price in excess of its marginal extraction cost simply to reflect the opportunity cost of using a unit of it today rather that conserving it for the future but how this excess is to change along an optimal or competitive equilibrium path of resource use is still an unresolved question this might at first seem puzzling since according to the fundamental theorem of economics of exhaustible resources or hotelling i 93 i rule on an optimal path price minus marginal extraction cost also termed interchangeably as scarcity rent user cost or royalty should steadily grow over time at the social rate of discount however the literature contains sharply contrasting views on the subject for example kay and mirrlees 1975 have argued that since along an optimal path the scarcity rent grows exponentially as a finite stock of a resourcexnears exhaustion then situations in which the resource stock is still very large and yet the price greatly exceeds the marginal extraction cost should indicate that the price is significantly above its optimal level and that the resource is overconserved in stark contrast to this view heal i976 has argued that as the resource stock nears exhaustion the difference between price and marginal cost or what he termed social cost of extraction falls monotonically to zero hanson i980 analyses the same model as heal s but unlike heal who assumes the unit extraction cost to be convex he postulates it to be concave and yet like heal concludes that the scarcity rent will be monotonically declining over time solow and wan i976 analyse a still different situation where resource deposits differ in quality and the unit extraction cost increases as higher grade deposits are exhausted and extraction proceeds to lower grades they show that along an optimal path the shadow price of a resource must rise at the real rate of interest despite differential extraction costs but that the difference between price and the marginal extraction cost or what they call degradation charge declines monotonically over time to zero these sharply differing conclusions suggest that far from being resolved the question of how scarcity rent changes over time is much in want of a close scrutiny the need for such a scrutiny becomes even stronger once it is noted

bank income structure and risk an empirical analysis of european banks the purpose of this paper is to investigate the relationship between bank risk and product diversification in the changing structure of the european banking industry based on a broad set of european banks for the period 1996 2002 our study first shows that banks expanding into non interest income activities present higher risk and higher insolvency risk than banks which mainly supply loans however considering size effects and splitting non interest activities into both trading activities and commission and fee activities we show that the positive link with risk is mostly accurate for small banks and essentially driven by commission and fee activities a higher share of trading activities is never associated with higher risk and for small banks it implies in some cases lower asset and default risks

explaining bank failures deposit insurance regulation and efficiency this paper uses micro level historical data to examine the causes of bank failure for state chartered kansas banks during 1910 28 time to failure is explicitly modeled using a proportional hazards framework in addition to standard financial ratios this study includes membership in the voluntary state deposit insurance system and a measure of technical efficiency to explain bank failure the results indicate that deposit insurance system membership increased the probability of failure and technically inefficient banks were more likely to fail than technically efficient banks copyright 1995 by mit press

how loan portfolio diversification affects risk efficiency and capitalization a managerial behavior model for austrian banks abstract the aim of this paper is to analyze how diversification of banks across size and industry affects risk cost and profit efficiency and bank capitalization for large austrian commercial banks over the years 1997 2003 employing a unique dataset provided by the austrian central bank we test for several different types of managerial hypotheses formalized according to a modified version of the berger and deyoung model berger a n deyoung r 1997 problem loans and cost efficiency in commercial banks journal of banking and finance 21 849 870 we find that although diversification negatively affects cost efficiency it increases profit efficiency and reduces banks realized risk finally diversification seems to have a positive impact on banks capitalization

characteristics determining the efficiency of foreign banks in australia abstract the factors determining foreign bank efficiency are investigated using a three stage research method it is found that host market incumbency reduces efficiency of foreign banks in australia resulting in over use of inputs factors underlying the limited global advantage hypothesis of berger et al berger allen n deyoung robert genay hesna udell gregory f 2000 globalisation of financial institutions evidence from cross border banking performance brookings wharton papers on financial service 3 23 120 are identified in that nationality specific factors represented by dummy variables are not significant once other relevant effects are controlled for parent profitability is not found to result in increased host nation efficiency while parent credit rating effects are mixed some evidence is presented that banks from more financially sophisticated nations are more efficient the implications of these results are explored from the perspectives of bank management and bank regulators