Does the capital structure affect banks’ profitability? Pre- and post financial crisis evidence from significant banks in France
Olivier de Bandt (),
P. Pessarossi and
Martin Rose ()
Débats économiques et financiers from Banque de France
This paper studies the effect of banks’ capitalization on banks’ Return on Equity (ROE). A debate has emerged on the costs for banks of the increase in capital requirements under Basel III. We bring empirical evidence on this issue by analyzing the effect of different capitalization measures on banks’ ROE on a sample of large French banks over the period 1993-2012, controlling for risk-taking as well as a range of variables including the business model. We find that an increase in capital leads to a significant increase in ROE, albeit the economic effect is modest. Furthermore, the method chosen by a bank to increase capitalization (i.e. raising equity) does not alter the result. Over the period, we find some evidence of a negative relationship between the share of credit activities and ROE, which is driven by the 2002-2007 sub-period, characterized by a significant increase in other business line activities. Looking at revenue and cost components, the positive effect of capital on the ROE appears to be driven by an increase in efficiency.
Keywords: ROE; solvency ratios; capital; banking regulation; Basel III. (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 49 pages
New Economics Papers: this item is included in nep-ban, nep-eff and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
https://acpr.banque-france.fr/fileadmin/user_uploa ... ks-profitability.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bfr:decfin:12
Access Statistics for this paper
More papers in Débats économiques et financiers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().