Bank financial world crisis: inefficiencies and responsibilities

In light of the recent financial world crisis, is crucial to investigate into the responsibilities of the main actors in the credit sectors, i.e. banks and local governments. In this framework, we propose a methodology able to analyze the quality of the problem loans adopted by banks, their level of efficiency in the risk management strategies and the governments policy action in the supervision of the local banking system. Our approach is based on the introduction of the “Non performing Loans” variable as an undesirable output in an output distance function (as stochastic frontier) in order to estimate the efficiency of the bank and calculate the shadow price of the NPLs (not normally observable) per each year, bank and country. Then we compare the management of the NPLs and their price across geographic areas and bank dimension over time in order to map the responsibilities and to draw some policy implications. From an econometric point of view, we -to our knowledge- for first adopt the semi-nonparametric Fourier specification which, among the functional-flexibleform alternatives, is capable to guarantee the convergence of the estimated parameters and the related X-efficiency to the true ones.