Evaluating Bank Efficiency with Risk Management by Optimal Common Resource and Three-Parallel Two-Stage Dynamic DEA Model

Abstract

Taking risk management as an independent department and comparable factor, we set up three parallel departments (credit, risk management, and investment) in a bank. To resolve the problem of common resource allocation, this study is the first to combine the three parallel departments and the optimal common resource allocation in the banking framework. The empirical results show the following. (1) The efficiency and ranking of banks with risk management are better than that without risk management. (2) Banks that share common resources in an optimal way have higher efficiency than banks that share resources in a non-optimal way.