Neutrality And efficiency in Colombian Banking System

Although efficiency has been tested previously in Colombia, studies mislead the main element which is faced by the system: risk. Most studies assume banks are risk neutral, this fact tends to underestimate efficiency, especially when a country faces an economic crisis, like the one of the late nineties. Indeed a bank which may be inefficient on the traditional way (because of its high costs) may be efficient on the risk approach since it considers the trade-off between risk and efficiency. The current paper is based on Hughes, Lang, Mester and Moon work bur focusing on credit and market risk impact on efficiency. In addition, one studies how neutrality behavior (and in turn efficiency) changes over time (especially in crises) for specific group of financial intermediaries, it means the paper tests how credit and market risk affects on a different way the three groups of financial intermediaries selected (banks, financial corporations and leasing companies). In addition, it is assessed how the legal restrictions in credit and solvency are reflected on the efficiency of the system.