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Bank business models: popularity and performance

Rungporn Roengpitya, Nikola Tarashev, Kostas Tsatsaronis () and Alan Villegas

No 682, BIS Working Papers from Bank for International Settlements

Abstract: 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
Date: 2017-12
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