European Banks’ Profitability and Sentimental Cycle

Dimitris Anastasiou, Stelios Giannoulakis, Andreas Koutoupis, Christos Tzomakas and Leonidas G. Davidopoulos

Review of Behavioral Economics, 2022, vol. 9, issue 3, 223-250

Abstract: Utilizing bank-level data and a Mixed Frequency VAR approach, this study examines the effects of a shock at the economic sentiment on European banks’ profitability during the 1995–2019 period. We find that a greater shock in economic sentiment leads to a persistent and gradually amplified stimulation of banks’ profitability. Our findings extend previous evidence on the determinants of bank profitability and have important policy implications. First, macroprudential policymakers and regulators should design and implement a regulatory framework that has an especial focus on economic sentiment accompanied by the usual bank-specific or macroeconomic-specific fundamentals to facilitate the existence of higher profitability in the banking industry. Second, banks' management (Boards, Risk Committees, and executive management) should embrace a more forward-looking philosophy and implement sentiment indicators to their strategy to achieve sustainability.

Keywords: Banks profitability; economic sentiment; sentimental cycle; expectations; panel mixed frequency VAR (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://dx.doi.org/10.1561/105.00000157 (application/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:now:jnlrbe:105.00000157

Access Statistics for this article

More articles in Review of Behavioral Economics from now publishers
Bibliographic data for series maintained by Lucy Wiseman ().