Business models of the banks in the euro area

Matteo Farnè and Angelos Vouldis

No 2070, Working Paper Series from European Central Bank

Abstract: The paper identifies the business models followed by banks in the euro area utilising a proprietary dataset collected in the context of the supervisory reporting of the Single Supervisory Mechanism. The concept of a ‘business model’ has been neglected by economic theory and is defined here with respect to the set of activities performed by banks. We adopt a clustering methodology to provide evidence for the existence of distinct business models. Clustering is combined with dimensionality reduction optimally, given the nature of our dataset which features a large number of dimensions for each bank (‘fat’ data). The method produces a level and a contrast factor which are intuitive in the economic sense. Four business models are identified alongside a set of ‘outlier’ banks that follow unique business models. The risk and performance indicators of each cluster are examined and evidence is provided that they follow distinct statistical distributions. JEL Classification: C63, G21, L21, L25

Keywords: banking sector; business models; cluster analysis; single supervisory mechanism (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-ban, nep-dcm and nep-eec
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172070

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