The fat years: the structure and profitability of the US banking sector in the pre-crisis period

Fiona Tregenna

Cambridge Journal of Economics, 2009, vol. 33, issue 4, 609-632

Abstract: Bank profitability in the USA was extremely high in the pre-crisis period, yet this did not prevent the current crisis. It has become clear that these profits were on shaky grounds and also that bank profits were not used to buttress banks' capital bases. This paper analyses the effects of structure on profitability from 1994 to 2005. Bank-level panel data are used to test the effects of concentration, market power, bank size and operational efficiency on profitability. Efficiency is not found to be a strong determinant of profitability, suggesting that banks' high profits during this period were not 'earned' through efficient performance. Robust evidence is found that concentration increases bank profitability. This holds even when the largest banks are excluded from the sample, suggesting that the relationship between concentration and profitability acts in a generalised structural way and that the higher profits arising from concentration are at the expense of the rest of the economy. The analysis points to various policy implications relevant to the current crisis, in particular in terms of the legitimacy of expectations of the restoration of pre-crisis profit rates and the need for much stronger regulation of the banking sector, especially in terms of the structure of the sector, pricing behaviour and use of profits. Copyright The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (48)

Downloads: (external link)
http://hdl.handle.net/10.1093/cje/bep025 (application/pdf)
Access to full text is restricted to subscribers.

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:oup:cambje:v:33:y:2009:i:4:p:609-632

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Cambridge Journal of Economics is currently edited by Jacqui Lagrue

More articles in Cambridge Journal of Economics from Cambridge Political Economy Society Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().