Capital shortfall: A multicriteria decision support system for the identification of weak banks

摘要

Following the 2007–2008 global financial crisis, regulators introduced a series of supervisory tools for the closer monitoring of financial institutions. Among them, stress tests and capital exercises performed by the Federal Reserve System (Fed) and the European Banking Authority/European Central Bank (EBA/ECB) play a critical role in the surveillance of the U.S. and the European banking sector. However, due to their nature, these exercises are time consuming. Therefore, we propose the use of a multicriteria based decision support system (DSS) to model and predict the regulatory decisions and outcomes of the above-mentioned exercises. Thus, the proposed approach can be employed by regulators as an early-warning system (EWS) for the continuous, automated, and timely identification of weak banks in need of capitalization, as well as by bank managers and risk analysts as a tool for capital management and strategic planning.