Abstract
The field of evaluation of financial stability of commercial banks, which emanates from persistent existence of financial crisis, induces interest of researchers for over a century. The span of prevailing methodologies stretches from over-simplified risk-return approaches to ones comprising large number of economic variables on the micro- and/or macro-economic level. Methodologies of rating agencies and current methodologies reviewed and applied by the ECB are not intended for reducing information asymmetry in the market of commercial banks. In the paper it is shown that the Lithuanian financial system is bankbased with deposits of households being its primary sources, and its stability is primarily depending on behavior of depositors. A methodology of evaluation of commercial banks with features of decreasing information asymmetry in the market of commercial banks is being developed by comparing different MCDA methods.
Highlights
A methodology of evaluation of commercial banks with features of decreasing information asymmetry in the market of commercial banks is being developed by comparing different MCDA methods
We have undertaken a conservative view as we believe that this objective, as well as two other following objectives in Earnings category, more adequately accounts profitability of assets in terms of riskiness than in the case if interest income was divided by total assets
The category of earnings is represented by two ratios, which both have to be maximized: (a) Pre-provision profits compared to risk-weighted assets. This ratio reveals the capability of a bank to generate cash, which could serve as a remedy for various losses; (b) Net income compared to risk-weighted assets
Summary
In this paper Lithuanian banks are evaluated using multiple criteria decision aid methods. The mentioned methodology is intended to reduce information asymmetry level in the market of commercial banks and depositors by providing results of evaluation in different forms in order to suit the level of comprehension of every depositor enabling him as a decision-maker to obtain adequate perception of bank financial stability in accordance with his level of comprehension. CAMEL represents the abbreviation of Capital adequacy, Asset quality, Management quality, Earnings and Liquidity This categorization is used by the American Federal Reserve, FDIC (deposit insurance) and the OCC (Office of the Comptroller of the Currency), (Podviezko and Ginevičius 2010). It comprises major types of objectives representing stability of banks.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
