The three papers in this issue focus on three different types of financial
risks - exchange rate risk, mortality risk and default risk. The first paper, "Measuring Efficiency for Volatile Exposure to Exchange Rate Risk
Base Supported by Fuzzy DEA Approach", by Hsien-Chang Kuo and Lie-Huey Wang, uses
the Fuzzy Data Envelopment Analysis (DEA) to measure the efficiency of the
Multinational Corporations (MNCs) of the Taiwan Information Technology (IT) industry, in the face
of volatile exposure to exchange rate risk. The Integrated Chip (IC) industry is
represented by 48 firms and the Thin Firm Transistor-Liquid Crystal Display (TFT-LCD) industry
is represented by 55 firms. The results show that 10 firms each in both TFT-LCD and
IC industries are efficient, while 8 firms in the IC industry and 12 firms in the
TFT-LCD industry are relatively inefficient. The remaining 30 firms in the IC industry and 33
firms in the TFT-LCD industry are inefficient. The results also reveal that both
large-sized MNCs, with a high degree of internationalization and small-sized MNCs, with a
low degree of internationalization, tend to be relatively efficient.
The second paper, "Capital Allocation to Meet Mortality
Risks for Life Annuities", by Annamaria Olivieri and Ermanno Pitacco, investigates rules for assessing the
capital required by a life annuity portfolio to meet
the mortality risks, longevity risk in particular. Risks other than mortality
have been disregarded. Models for assessing the impact of longevity risk on life annuity portfolios and pension funds, evaluating
the consequent need for capital allocation, have already been proposed in the
actuarial literature, which mainly focus on alternative approaches to solvency assessment over
a multi-year time horizon. Approaches based on a deferral and matching or an asset
and liability logic are further developed in this paper, in which rules that could be
adopted in internal models have been discussed. For practical purpose, this approach
could represent a good compromise, provided that the relevant assumptions are
properly disclosed.
The third paper, "Basel II Capital Requirement Sensitivity to the Definition
of Default", by Jirí Witzany, is motivated by a disturbing observation according to
which the outcome of the regulatory formula significantly depends on the definition of
default used to measure the Probability of Default (PD) and the
Loss Given Default (LGD) parameters. Basel II regulatory capital should estimate
at certain probability level,
the unexpected credit losses on banking portfolios and so it should not depend on
a particular definition of default, that does not change
real, historical and expected losses. The paper
provides an explanation of the phenomenon based on the Merton
default model and tests it using a Monte Carlo simulation. Moreover, the paper develops
an analytical method to model LGD unexpected risk and combines it with the
PD unexpected risk. The developed formula, and in particular its simplified version,
could be used to improve the current regulatory formula. The analysis at the same
time provides a different insight into the issue of regulatory capital sensitivity to
the definition of default. Finally, it performs a structural model-based simulation to
test the hypothesis according to which scoring functions developed with a soft
definition of default have weaker predictive power than the ones developed with a
hard definition of default.
Automated Teller Machines (ATMs): The Changing Face of Banking in India
Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.
The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario
If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.
Indian Scenario
The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.
