Where Have All the Profits Gone? European Bank Profitability Over the Financial Cycle

Enrica Detragiache (), Thierry Tressel and Rima Turk Ariss

No 2018/099, IMF Working Papers from International Monetary Fund

Abstract: The paper investigates EU banks’ profitability through the recent financial cycle using banklevel balance sheet and income statement data. We find that banks that were more successful at protecting their profits had a less pronounced deterioration in loan quality and a larger improvement in cost efficiency. They also downsized their assets more aggressively during the crisis, and reduced reliance on wholesale funding more markedly post-crisis. Net interest margins remained broadly stable over the financial cycle, including post-crisis, and there is no clear evidence that aspects of bank business model, such as higher reliance on fees and commission income, were associated with better profitability post-crisis.

Keywords: WP; bank; EU bank; profitability; Financial Cycle; Bank Profitability; Financial Crisis; bank characteristic; bank leverage; bank asset; return on equity; profit growth; bank performance; Bank soundness; Financial cycles; Personal income; Nonperforming loans; Global systemically important banks; Global (search for similar items in EconPapers)
Pages: 34
Date: 2018-05-09
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Citations: View citations in EconPapers (20)

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