What drives investment bank performance? the role of risk, liquidity and fees prior to and during the crisis

Emmanuel Mamatzakis and T Bermpei

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines factors that affect the performance of investment banks in the G7 and Switzerland. In particular, we focus on the role of risk, liquidity and investment banking fees. Panel analysis shows that those variables significantly impact upon performance as derived from stochastic frontier analysis (SFA). Given our sample also comprises the financial crisis, we further test for regimes switches using dynamic panel threshold analysis. Results show different underlying regimes, in particular over the financial crisis. In addition, a strong positive effect of Z-Score on performance for banks in the regime of low default risk is reported, whilst fee-income ratio has also a positive impact for banks with low level of fees. On the other hand, liquidity exerts a negative impact. Notably, there is a clear trend of mobility of banks across the two identified threshold regimes with regards to risk a year before the financial crisis. Our results provide evidence that recent regulation reforms regarding capital adequacy and liquidity requirements are on the right track and could enhance performance.

Keywords: Investment Banking; Risk; Liquidity; Fees; Dynamic Panel Threshold Analysis. (search for similar items in EconPapers)
JEL-codes: G1 G18 G21 (search for similar items in EconPapers)
Date: 2014-11-14
New Economics Papers: this item is included in nep-ban, nep-eff and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Journal Article: What drives investment bank performance? The role of risk, liquidity and fees prior to and during the crisis (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:60196

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