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Bank performance in Europe and the US: a divergence in market-to-book ratios

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  • Mathieu Simoens
  • Rudi Vander Vennet

Abstract

Post 2008, the market-to-book ratios of European and US banks have diverged markedly. We use panel regressions to investigate the determinants of the M/B ratios of 112 European and US banks. We show that the underperformance of European banks is mainly driven by non-performing loans and by the negative impact of policy rates on bank interest margins. The higher US bank valuations are mainly driven by higher pro tability and better cost eciency. Our results for European banks stress the importance of timely NPL resolution and imply that low-for-long monetary policy may harm bank health.

Suggested Citation

  • Mathieu Simoens & Rudi Vander Vennet, 2019. "Bank performance in Europe and the US: a divergence in market-to-book ratios," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 19/988, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:19/988
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    References listed on IDEAS

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    Cited by:

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    2. Patrick Bernard Washington & Shafiq Ur Rehman & Ernesto Lee, 2022. "Nexus between Regulatory Sandbox and Performance of Digital Banks—A Study on UK Digital Banks," JRFM, MDPI, vol. 15(12), pages 1-18, December.
    3. Joonho Moon & Won Seok Lee & Jimin Shim, 2022. "Chief Executive Officers and the Value of US Airlines: The Moderating Effect of Carrier Type," Sustainability, MDPI, vol. 14(13), pages 1-12, June.
    4. Yildirim, Canan & Kasman, Adnan & Gulamhussen, Mohamed Azzim, 2023. "Efficiency of multinational banks: Impacts of geographic and product loci," International Business Review, Elsevier, vol. 32(5).
    5. Soenen, Nicolas & Vander Vennet, Rudi, 2022. "Determinants of European banks’ default risk," Finance Research Letters, Elsevier, vol. 47(PA).
    6. Lamers, Martien & Present, Thomas & Vander Vennet, Rudi, 2022. "European bank profitability: The great convergence?," Finance Research Letters, Elsevier, vol. 49(C).
    7. Achraf Haddad & Anis El Ammari & Abdelfattah Bouri, 2021. "Impact of Audit Committee Quality on the Financial Performance of Conventional and Islamic Banks," JRFM, MDPI, vol. 14(4), pages 1-24, April.
    8. Jung, Alexander, 2023. "Are monetary policy shocks causal to bank health? Evidence from the euro area," Journal of Macroeconomics, Elsevier, vol. 75(C).

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    More about this item

    Keywords

    market-to-book ratio; European banks; US banks; franchise value; bank performance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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