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Bank business models, size, and profitability

Author

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  • Bolívar, Fernando
  • Duran, Miguel A.
  • Lozano-Vivas, Ana

Abstract

To examine the relation between profitability and business models (BMs) across bank sizes, the paper proposes a research strategy based on machine learning techniques. This strategy allows for analyzing whether size and profit performance underlie BM heterogeneity, with BM identification being based on how the components of the bank portfolio contribute to profitability. The empirical exercise focuses on the European Union banking system. Our results suggest that banks with analogous levels of performance and different sizes share strategic features. Additionally, high capital ratios seem compatible with high profitability if banks, relative to their size peers, adopt a standard retail BM.

Suggested Citation

  • Bolívar, Fernando & Duran, Miguel A. & Lozano-Vivas, Ana, 2023. "Bank business models, size, and profitability," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612322007814
    DOI: 10.1016/j.frl.2022.103605
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    References listed on IDEAS

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    More about this item

    Keywords

    Business model; Clustering; Machine learning; Profitability; Random forest; Size; Tree interpreter;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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