Abstract
Cone ratio DEA (Data Envelopment Analysis) models are suggested for monitoring and/or early warning systems to be used by bank regulatory agencies. Illustrative examples are developed from data on 1984 and 1985 performances of the 16 largest banks in Texas. Five large non-Texas banks are introduced as “excellent performers” to help evaluate these Texas banks in terms of their “risk coverage” as well as “efficiency”. Cone ratio envelopment areused to tarnsform original data in order to reflect performances by the non-Texas banks with respect to “risk coverage” as well as “efficiency”. Formulas for transforming to and from the original data are supplied with accompanying explanations and interpretations which include comparisons with the “risk-adjusted capital” and “risk-coverage” allowances formulas that have been adopted recently by U.S. Government (and other) regulators in banking (and insurance) in conformance with the “Basel Agreement” of 1988.