Fuzzy Logic and Its Uses in Finance: A Systematic Review Exploring Its Potential to Deal with Banking Crises

The major success of fuzzy logic in the field of remote control opened the door to its application in many other fields, including finance. However, there has not been an updated and comprehensive literature review on the uses of fuzzy logic in the financial field. For that reason, this study attempts to critically examine fuzzy logic as an effective, useful method to be applied to financial research and, particularly, to the management of banking crises. The data sources were Web of Science and Scopus, followed by an assessment of the records according to pre-established criteria and an arrangement of the information in two main axes: financial markets and corporate finance. A major finding of this analysis is that fuzzy logic has not yet been used to address banking crises or as an alternative to ensure the resolvability of banks while minimizing the impact on the real economy. Therefore, we consider this article relevant for supervisory and regulatory bodies, as well as for banks and academic researchers, since it opens the door to several new research axes on banking crisis analyses using artificial intelligence techniques

The identification of acquisition targets in the EU banking industry: An application of multicriteria approaches

In this paper we develop classification models for the identification of acquisition targets in the EU banking industry, incorporating financial variables that are mostly unique to the banking industry and originate from the CAMEL approach. A sample of 168 non-acquired banks matched with 168 acquired banks is used over the period 1998-2002, covering 15 EU countries. We compare and evaluate the relative efficiency of three multicriteria approaches, namely MHDIS, PAIRCLAS, and UTADIS, with all models developed and tested using a 10-fold cross validation approach. We find that the importance of the variables differs across the models. However, on the basis of univariate test and the results of the models we could state that in general after adjusting for the country where banks operate, acquired banks are less well capitalized and less cost and profit efficient. The results show that the developed models can achieve higher classification accuracies than a naïve model based on random assignments. Nevertheless, there is fair amount of misclassification that is hard to avoid given the nature of the problem, showing that as in previous studies for non-financial firms, the identification of acquisitions targets in banking is a difficult task. © 2006 Elsevier Inc. All rights reserved

Development, test and comparison of two Multiple Criteria Decision Analysis(MCDA) models: A case of healthcare infrastructure location

When planning a new development, location decisions have always been a major issue. This paper examines and compares two modelling methods used to inform a healthcare infrastructure location decision. Two Multiple Criteria Decision Analysis (MCDA) models were developed to support the optimisation of this decision-making process, within a National Health Service (NHS) organisation, in the UK. The proposed model structure is based on seven criteria (environment and safety, size, total cost, accessibility, design, risks and population profile) and 28 sub-criteria. First, Evidential Reasoning (ER) was used to solve the model, then, the processes and results were compared with the Analytical Hierarchy Process (AHP). It was established that using ER or AHP led to the same solutions. However, the scores between the alternatives were significantly different; which impacted the stakeholders‟ decision-making. As the processes differ according to the model selected, ER or AHP, it is relevant to establish the practical and managerial implications for selecting one model or the other and providing evidence of which models best fit this specific environment. To achieve an optimum operational decision it is argued, in this study, that the most transparent and robust framework is achieved by merging ER process with the pair-wise comparison, an element of AHP. This paper makes a defined contribution by developing and examining the use of MCDA models, to rationalise new healthcare infrastructure location, with the proposed model to be used for future decision. Moreover, very few studies comparing different MCDA techniques were found, this study results enable practitioners to consider even further the modelling characteristics to ensure the development of a reliable framework, even if this means applying a hybrid approach

An assessment of the financial soundness of the Kazakh banks. [Tables and Appendices]

These appendices contain the tables and figures associated with a forthcoming article:SALINA, A.P., ZHANG, X. and HASSAN, O.A.G. 2021. An assessment of the financial soundness of the Kazakh banks. Asian journal of accounting research [online], 6(1), pages 23-37. Available from: https://doi.org/10.1108/AJAR-03-2019-002

Ranking of EU national banking systems using multi-criteria analysis in the light of Brexit

In order to define and implement the most effective measures to overcome the difficulties of the post-crisis period, the policy-makers of ECB must identify not just main weaknesses of each banking system, but their strong points also. This requires the application of multi-criteria analysis, considering that policy-makers need to take into account a number of different aspects that, on the whole, indicate the quality of the banking system. Our aim is a comparative analysis of European banking systems right after the Brexit moment and within the framework of the tight new Basel III regulations. In this paper, we have ranked the banking systems of the 28 EU member states using multi-criteria analysis, specifically the PROMETHEE II method. The use of the PROMETHEE II method in combination with the entropy method offers a comprehensive insight into the banking system of each member state, given that the observed countries are ranked according to 9 conflicting criteria that are mostly used in banking system analysis. Our analysis shows that the banking systems in Central and Eastern Europe are the best performers, while the EMU’s developed banking systems such as the German, Italian, British, and French one are positioned among the last ranked. The Portuguese and Greek banking systems are, as expected, ranked in the last positions in our list. The obtained results also pointed out that the ECB should change its approach to the management and further development of a European Banking Union

Adding Value to Bank Branch Performance Evaluation Using Cognitive Maps and MCDA: A Case Study

The performance evaluation of bank branches is a difficult task. One of the main reasons for this difficulty is the complexity inherent in the variety of aspects to be considered in the evaluation, and the multiple and conflicting interests of the different stakeholders involved. In this paper we aim to show how cognitive mapping and the MACBETH approach can be used to support the evaluation of bank branches through the development of multidimensional performance evaluation systems, and to deal explicitly with the trade-offs between the different dimensions of performance and interests of different stakeholders. A case study is discussed where these techniques are used in a constructive way, making the learning activity easier and introducing transparency in the decision making process. The strengths and weaknesses of the integrated use of these two operational research techniques in this context are also discussed.

Efficiency in BRICS banking under data vagueness:a two-stage fuzzy approach

This study analyzes the efficiency levels of the banking industry in the BRICS countries (Brazil, Russia, India, China, and South Africa) from 2010 to 2014, using an integrated two-stage fuzzy approach. Very often the reliability of data collected from BRICS is questionable. In this research, we first use fuzzy TOPSIS to capture vagueness in the relative efficiency of BRICS banking over time. In the second stage, we adopt fuzzy regressions based on different rule-based systems to enhance the power of significant socioeconomic, regulatory, and demographic variables to predict banking efficiency. These variables are previously identified by using bootstrapped truncated regressions with conditional α-levels, as proposed by Wanke, Barros, and Emrouznejad (2015a). The results reveal that efficiency in the banking industry is positively associated with country gross savings and the GINI index ratio, but negatively associated with relatively high inflation ratios. Fuzzy regressions proved far more accurate than bootstrapped truncated regressions with conditional α-levels. We derive policy implications

A Multicriteria Approach for the Evaluation of the Sustainability of Re-use of Historic Buildings in Venice

The paper presents a multiple criteria model for the evaluation of the sustainability of projects for the economic re-use of historical buildings in Venice. The model utilises the relevant parameters for the appraisal of sustainability, aggregated into three macro-indicators: intrinsic sustainability, context sustainability and economic-financial feasibility. The model has been calibrated by a panel of experts and tested on two reuse hypotheses of the Old Arsenal in Venice. The tests have proven the model to be a useful support in the early stages of evaluation of re-use projects, where economic improvements are to be combined with conservation, as it supports the identification of critical points and the selection of projects, thus providing not only a check-list of variables to be considered, but an appraisal of trade-offs between economic uses and requirements of conservation.Economic Reuse, Historical Building Conservation

Corporate equity and fi nancial stability: An approach based on net worth at risk.

This article is based on a study conducted jointly by the Deutsche Bundesbank, the Banco d’Espana, the Centrale dei Bilanci (Italy) and the Banque de France under the aegis of the European Committee of Central Balance Sheet Offi ces.1 It looks at companies’ resilience in the event of an exceptional cyclical shock. The article starts by outlining the economic role of equity capital, which lies at the heart of the relationship between risk and return. It can be examined from two main angles, either as a financing instrument or as a buffer in the event of a shock. This study focuses on this second function, looking at it from a meso-economic perspective for which the use of central balance sheet offices is particularly well suited. It sets out to describe the implications of a crisis situation in terms of minimum capital requirements. A comparison is drawn between the situation of manufacturing sector companies in the four countries under review over the period 1987-2002 by means of several traditional indicators (income, equity capital), which resulted in the computation of a Net Worth at Risk (NWaR) indicator. The NWaR figures are calibrated on the basis of an analysis of the distribution of accounting losses (in particular at the 90th and 95th percentiles) calculated using company samples. They indicate the minimum capital that would be required in order to absorb any losses in the event of very unfavourable economic conditions. The difference between NWaR and the observed level of equity capital gives us an indication of the number of companies for which the default rate is likely to increase significantly in a crisis situation. The proportion of companies that appear fragile in the event of a severe economic downturn is around 40%, as against 20% in a “normal” situation. However, this statistical analysis needs to be put into perspective. In practice, only a minority of companies default, since the majority of them benefit from protective measures implemented by their shareholders, managers and creditors to enable them to weather the downturn and revive their activity. In spite of the limitations of this indicator (which are also discussed in the study), these findings will draw the attention of bank and company managers to the need to make financial projections and credit risk assessments both in normal business conditions and crisis situations. An approach based on net worth at risk sheds light on the determinants of a sound financing structure and encourages the development of an active approach to preventing corporate financing problems.

Environmentally Extended Input–Output Analysis of the UK Economy: Key Sector Analysis

The paper assesses the sustainability of investment in various economic sectors, with the aim of minimizing resource use and generation of emissions. The broad development focus of the paper and the potential for the proposed methodology to be applied in many different countries make it a useful methodological contribution to the global sustainability debate. The UK case is taken for illustration purposes, and (given the availability of the necessary data) this methodology could be applied in countries with various economic structures and specialisations. An environmentally extended static 123-sector UK input–output model is used, linking a range of physical flows (domestic extraction, use of water, and emissions of CO2, CH4, NOx) with the economic structure of the UK. A range of environmentally adjusted forward and backward linkage coefficients has been developed, adjusted according to final demand, domestic extraction, publicly supplied and directly abstracted water, amd emissions of CO2 and NOx,. The data on the final demandadjusted and environmentally adjusted forward and backward linkage coefficients were used in a multi-criteria decision-aid assessment, employing a NAIADE method in three different sustainability settings. The assessment was constructed in such a way that each sector of the UK economy was assessed by means of a panel of sustainability criteria, maximizing economic effects and minimizing environmental effects. This type of multi-criteria analysis, applied here for the first time, could prove to be a valuable basis for similar studies, especially in the developing world, where trade-offs between economic development and environmental protection have been the subject of considerable debate.input–output analysis; environmentally extended; MCDA; key sectors; sustainability; ecological economics; UK