Bank performance before and after the subprime crisis: Evidence from pooled data on big US banks

Using a quarterly sample of the 19 biggest US banks—i.e., four universal banks and fifteen regional banks—we find, with the help of a robust GMM method accounting for the endogeneity of bank diversification in fee-based income, that low interest rates induce banks—especially the Big 4—to shift their business model toward fee and commission sources of income. Concomitantly, the regulatory constraints imposed on banks after the subprime crisis—principally on liquidity, trading and fee business lines—are partly responsible for a structural decrease in bank performance. We also find that the vanishing of securitization fees has depressed the risk-adjusted ROA of regional banks, while the decrease in the contributions of charges on deposits and trading might have impaired the performance of universal banks. To mitigate the reduction in their ROA, big US banks seem to get more involved in riskier non-traditional activities.