Abstract

The impact of derivatives is again in caution in the banking industry since the emergence of the subprime crisis. This debate is not recent as Diamond already introduced it claiming for derivatives use to let banks focus on their delegate monitoring comparative advantage. We contribute to this debate by analysing the impact of derivatives on banking efficiency in the Eurozone over 2006-2010.
The Eurozone is particularly relevant for this analysis as it is the most integrated banking sector with comparable accounting rules. We measure efficiency with two non-parametric approaches to avoid specication issues, data envelopment analysis and free disposal hull approach. Our unique dataset allows us to disentangle all types of derivatives and their impact on efficiency. We conclude that both hedging and trading derivatives enhanced banking efficiency in the Eurozone over our sample.
Original languageEnglish
Publication statusIn preparation - 2013

Fingerprint

Banking
Euro zone
Derivatives
Hedging
Subprime crisis
Data envelopment analysis
Monitoring
Banking industry
Diamond
Free disposal hull
Efficiency measures
Comparative advantage
Banking sector
Integrated

Keywords

  • Derivatives,
  • Banking Efficiency,
  • Data Envelopment Analysis,
  • Freed Disposal Hull models

Cite this

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abstract = "The impact of derivatives is again in caution in the banking industry since the emergence of the subprime crisis. This debate is not recent as Diamond already introduced it claiming for derivatives use to let banks focus on their delegate monitoring comparative advantage. We contribute to this debate by analysing the impact of derivatives on banking efficiency in the Eurozone over 2006-2010.The Eurozone is particularly relevant for this analysis as it is the most integrated banking sector with comparable accounting rules. We measure efficiency with two non-parametric approaches to avoid specication issues, data envelopment analysis and free disposal hull approach. Our unique dataset allows us to disentangle all types of derivatives and their impact on efficiency. We conclude that both hedging and trading derivatives enhanced banking efficiency in the Eurozone over our sample.",
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