Determinants of Bank Profitability in the Euro Area: Has Anything Changed?

Mariarosa Borroni (), Mariacristina Piva and Simone Rossi ()
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Mariarosa Borroni: Dipartimento di Scienze Economiche e Sociali, Università Cattolica
Simone Rossi: Dipartimento di Scienze Economiche e Sociali, Università Cattolica

No dises1619, DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: During the recent financial crisis bank profitability has become an element of strong concern for regulators and policymakers; in fact, both self-financing strategies and capital increases - necessary to provide a higher level of capitalization - rely on the ability of a bank to generate profits. However, the determinants of bank profitability, which seemed to be unequivocally identified by previous literature, appear to have changed under the effect of regulatory and competitive dynamics. We test this hypothesis on commercial, cooperative and saving banks, employing a random effect panel regression on a dataset comprising bank-level data and macroeconomic information (covering the period 2006-2013) for nine countries of the Euro area. Our findings suggest that after a period of "irrational exuberance" in which credit growth and high leverage were seen as proper and fast ways to boost profitability, a sound financial structure and a wiser and objective credit portfolio management have become the main drivers to ensure higher returns.

Keywords: Financial crisis; Bank profitability; Euro Area (search for similar items in EconPapers)
JEL-codes: G01 G21 L25 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2016-11
New Economics Papers: this item is included in nep-ban and nep-eec
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