| Summary: | 博士 === 東吳大學 === 經濟學系 === 102 === The financial crisis began in 2007 has exposed numerous important shortcomings relate with banking regulations and Basel II. An authority on the bank of Taiwanese supervisory announcement will complete the implement the Basel III framework at the end of 2018. Even though Taiwanese banks adjust their risk exposure assets immediately, they still have to strengthen their equity capitals to comply with the requirement of Basel III.
This paper attempts to address this problem. So we search for any possible solution by the components of CAR (Capital Adequacy Ratio) formula. We argue that the loan, investment and commitments would be substituted for RWAs (Risk-Weighted Assets) and specify the RWAs as intermediate outputs. We follow the seminal work of Färe et al. (2004) explores on evaluating performance of banks used the directional distance function of DEA (Data Envelopment Analysis) to determine the effect of risk-based capital requirements. They use the profit function and solve their problems from profit maximum. But these models show two drawbacks. The risk weights of assets (for example cash and federal funds are assigned a weight of 0, and residual assets are assigned a weight of 1) are fixed. The other is that their analyses lacked intermediate measures. Therefore, we try to relax the assumption that risk weight of RWAs were fixed, and treat the RWAs as the intermediate measures.
The purpose of this study is to evaluate performance of Taiwanese banks with considering risk-based capital requirements applied Two-Stage DEA models. The first stage is the processes of risk control and portfolio selection. The second stage is the process of profit-earning. We treat the eight categories of RWAs for credit risk as the intermediate measures to link both stages. Our steps are follows. Firstly, we solve the inefficiency scores of four models, and compare these inefficiency scores with different models among five groups. Secondly, we would derive the each risk exposure of its risk weight and distributed ratio for credit risk, distributed ratios of three risks (credit risk, market risk, and operational risk), and from CAR’s formula. Finally, we try to find out the optimal intermediate outputs for each bank.
Our findings the inefficiency score of Industrial Banks’ group is the best in four models. It implies their risk appetite is higher and holds on higher capital adequacy. They are willing to accept higher risk business, but very carefully control their risks. Meanwhile, they apply the Sovereign Countries of risk exposure to turn down their RWAs but their loans, investment, and guaranteed are held constant.
Alternatively, we exclude the Industrial Banks’ group, to focus on the exploring of commercial bank. The inefficiency score of G4 (from regional SEM Banks upgraded to National banks) is the best in Two-Stage DEA Model. Because of their relatively larger distributed ratios of Other Assets and Retail Creditor’s Rights. Furthermore, they hold the second order of distributed ratio of Corporate for credit risk and the distributed ratio of Credit Risk. They seem proper implementation of risk control and portfolio selection (including the different combinations of categories and risk weights of risk exposures). And their final outputs are more efficiency. Meanwhile, their distributions of risk weight and eight categories could be treated the best practice of commercial banks.
To conclude, this study seems to consist with the aim of the Basel II. To ensure the allocation of capitals more sensitively reflect with its risk exposure. Meanwhile, these findings are in accord with the results of the previous studies which use a risk-based capital ratio. It seems to be the more effective to controlling banks’ portfolio risks and the banks simultaneously select the better CAR and distribution of risk exposure assets.
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