Where Have All the Profits Gone? European Bank Profitability Over the Financial Cycle

By Enrica Detragiache, Thierry Tressel, Rima A Turk

May 9, 2018

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Format: Chicago

Enrica Detragiache, Thierry Tressel, and Rima A Turk. Where Have All the Profits Gone? European Bank Profitability Over the Financial Cycle, (USA: International Monetary Fund, 2018) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The paper investigates EU banks’ profitability through the recent financial cycle using banklevel balance sheet and income statement data. We find that banks that were more successful at protecting their profits had a less pronounced deterioration in loan quality and a larger improvement in cost efficiency. They also downsized their assets more aggressively during the crisis, and reduced reliance on wholesale funding more markedly post-crisis. Net interest margins remained broadly stable over the financial cycle, including post-crisis, and there is no clear evidence that aspects of bank business model, such as higher reliance on fees and commission income, were associated with better profitability post-crisis.

Subject: Bank soundness, Banking, Financial cycles, Financial institutions, Financial sector policy and analysis, Global systemically important banks, National accounts, Nonperforming loans, Personal income

Keywords: Bank, Bank asset, Bank characteristic, Bank leverage, Bank performance, Bank Profitability, Bank soundness, EU bank, Financial Crisis, Financial Cycle, Financial cycles, Global, Global systemically important banks, Nonperforming loans, Personal income, Profit growth, Profitability, Return on equity, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/099
Stock No:

WPIEA2018099
ISBN:

9781484354544
ISSN:

1018-5941

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