Performance and risk in the Brazilian banking industry

Abstract

This paper assesses the technical performance of Brazilian banks while accounting for risk, which is considered as an undesirable outcome of banking. To this end, frontier techniques based on Data Envelopment Analysis and directional distance functions are applied to a sample of 124 banks and data for the six-year period 2014–19. Our main finding is that the Brazilian banking industry could notably increase its production of conventional outputs without additional input usage and while maintaining the same levels of risk. Besides, investment banks are found to be more efficient than commercial banks mainly because of their superior managerial performance.

Keywords

• Brazilian banking industry
• Commercial and investment banks
• Data Envelopment Analysis
• Directional distance functions
• Performance
• Risk