Bank business models: popularity and performance
Kostas Tsatsaronis () and
No 682, BIS Working Papers from Bank for International Settlements
We allocate banks to distinct business models by experimenting with various combinations of balance sheet characteristics as inputs in cluster analysis. Using a panel of 178 banks for the period 2005-15, we identify a retail-funded and a wholesale-funded commercial banking model that are robust to the choice of inputs. In comparison, a model emphasising trading activities and a universal banking model are less robustly identified. Both commercial banking models exhibit lower cost-to-income ratios and more stable return-on-equity than the trading model. In a reversal of a pre-crisis trend, the crisis aftermath witnessed mainly switches away from wholesale-funded and into retail-funded banking. Over the entire sample period, banks that switched into the retail-funded model saw their return-on-equity improve by 2.5 percentage points on average relative to non-switchers. By contrast, the relative performance of banks switching into the wholesale-funded model deteriorated by 5 percentage points on average.
Keywords: balance sheet characteristics; cluster analysis; discriminant analysis; model transitions; bank performance (search for similar items in EconPapers)
JEL-codes: D20 G21 L21 L25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-eff
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