The analysis of bank business performance and market risk—Applying Fuzzy DEA

a r t i c l e i n f o In the fast changing financial circumstances of nowadays, in avoiding the crisis of closing down, financial institutions are concerned about the efficiency and risk strictly in the meantime. Therefore, efficiency and risk management are goals for a financial institution administrator. Data Envelopment Analysis (DEA) is a non-parameter approach to evaluate the performance of DMU's efficiency and the variables used in the DEA are all accurate values. However, when the input or output variables are fuzzy, the performance of DMUs must proceed by the Fuzzy-DEA. On the basis of risk uncertainty, this research plans to apply the expanding model of Fuzzy Slack-Based Measurement (Fuzzy SBM). The efficiency scores estimated by Fuzzy SBM model are subordinate to functional form, which provides efficiency value region in different degrees of confidence, conforms to the characteristic of risk anticipation, and estimates the management achievement of Taiwan banking under market risk. As financial institutions around the world become more internationalized and globalized, the trading activities of the financial industry continue to rise. The market structure is further complicated due to the diversity and innovativeness of products available. Therefore , the risk of investment for financial institutions likewise increases. With such changes in the economic state, banks no longer have the sole role of being the purely monetary intermediary. They must now develop a whole range of investment channels in order to survive under such conditions. However, bearing the objective of profit-making in mind, banks will naturally increase their investments in high-risk products or increase leveraged trading, which means that the high potential profits mask the high risks involved and increase the probability of a bank's bankruptcy due to poor management. For this reason, more attention must be paid to the high risks attached to the high potential profits. The topic of Risk Adjusted Performance Measurement has, in recent years, gained increasing awareness and has become more widely discussed as people place more importance on risk management. From the perspective of efficiency measurement, Data Envelop-ment Analysis (DEA) takes into consideration both inputs and outputs. The mathematical method therefore provides a fair measurement of efficiency. Since this analytical model was first proposed, it has been widely applied in a whole range of industries. Most studies to date on bank efficiency have focused mainly upon the economies of scale and scope The fact that increasing importance is gradually …