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Banks’ business models in the euro area: a cluster analysis in high dimensions

Matteo Farnè () and Angelos Vouldis ()
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Matteo Farnè: University of Bologna

Annals of Operations Research, 2021, vol. 305, issue 1, No 2, 23-57

Abstract: Abstract We propose a clustering method for large dimensional data to classify the 365 largest euro area financial institutions according to their business model. The proposed clustering approach is applied to granular supervisory data on banks’ activities and combines also dimensionality reduction and outlier detection. We identify four business models, namely wholesale funded, securities holding, traditional commercial and complex commercial banks while identifying as outliers the banks that follow idiosyncratic business models. Evidence is provided that the sets of banks following the distinct business models differ with respect to performance and risk indicators.

Keywords: Bank business model; Robust clustering; Dimensionality reduction; Performance; Credit risk (search for similar items in EconPapers)
JEL-codes: C63 G21 G32 L21 L25 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10479-021-04045-9

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