Bank performance in Europe and the US: A divergence in market-to-book ratios

Mathieu Simoens and Rudi Vander Vennet

Finance Research Letters, 2021, vol. 40, issue C

Abstract: In the 2007–2017 period, the market-to-book ratios of European and US banks diverged markedly. We use panel regressions to investigate the determinants of M/B ratios for 112 European and US banks. We show that higher US valuations were driven by profitability and cost efficiency. The underperformance in Europe was associated with declines in the net interest margin and low policy rates, as well as with inadequate resolution of non-performing loans and an increasing share of deposits. Our results stress the importance of provisioning and NPL resolution in Europe. Moreover, low-for-long policy rates may be detrimental for bank franchise values.

Keywords: Market-to-book ratio; European banks; US banks; Franchise value; Bank performance (search for similar items in EconPapers)
JEL-codes: E52 G21 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: Bank performance in Europe and the US: a divergence in market-to-book ratios (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:40:y:2021:i:c:s1544612319313509

DOI: 10.1016/j.frl.2020.101672

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