Bank business models, size, and profitability

Fernando Bolívar, Miguel Duran and Ana Lozano-Vivas

Finance Research Letters, 2023, vol. 53, issue C

Abstract: To examine the relation between profitability and business models (BMs) across bank sizes, the paper proposes a research strategy based on machine learning techniques. This strategy allows for analyzing whether size and profit performance underlie BM heterogeneity, with BM identification being based on how the components of the bank portfolio contribute to profitability. The empirical exercise focuses on the European Union banking system. Our results suggest that banks with analogous levels of performance and different sizes share strategic features. Additionally, high capital ratios seem compatible with high profitability if banks, relative to their size peers, adopt a standard retail BM.

Keywords: Business model; Clustering; Machine learning; Profitability; Random forest; Size; Tree interpreter (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Bank Business Models, Size, and Profitability (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:53:y:2023:i:c:s1544612322007814

DOI: 10.1016/j.frl.2022.103605

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