Does high profitability improve stability for European banks?

Pierre Pessarossi, Jean-Luc Thevenon and Laurent Weill

Research in International Business and Finance, 2020, vol. 53, issue C

Abstract: We investigate whether high profitability influences the occurrence of bank distress in Europe. We utilize four sets of indicators for high profitability in logit models to explain bank distress with a hand-collected dataset of European bank distresses. We find that high profitability does not reduce the occurrence of bank distress. In contrast, we obtain limited evidence that high profitability can lead to increase such occurrence through a time horizon of about 3 years. Our findings therefore challenge the view that bank profitability should be promoted to favor bank stability.

Keywords: Bank profitability; Financial distress; Financial stability (search for similar items in EconPapers)
JEL-codes: G21 G33 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:53:y:2020:i:c:s0275531919307901

DOI: 10.1016/j.ribaf.2020.101220

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