What happened to profitability? Shocks, challenges and perspectives for euro area banks

Cheng, Gong and Mevis, Dirk (2015): What happened to profitability? Shocks, challenges and perspectives for euro area banks.

Abstract

This paper uses a newly constructed dataset including financial statement information of 311 banks in the euro area to analyse the evolution of bank profitability before and after the Global Financial Crisis and the subsequent European crisis. We first document the general trends in the changes in banks' profitability with a particular focus on country and bank heterogeneity. We find that the profitability of banks in different parts of the monetary union was hit by multiple shocks of different nature. Based on this, we then propose an econometric analysis of the drivers behind the evolution of bank profitability by discriminating factors relative to macroeconomic conditions, bank funding and portfolio structures, and new banking regulations in the euro area.

• Item Type: MPRA Paper
• Language: English
• Keywords: bank, profit, return on asset, bank regulation, bank business model
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope

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