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Revisiting bank profitability: A semi-parametric approach

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  • Kanas, Angelos
  • Vasiliou, Dimitrios
  • Eriotis, Nikolaos

Abstract

We employ a semi-parametric empirical model and reveal evidence that the U.S. bank profitability is affected non-parametrically by the business cycle, short-term interest rates, inflation expectations, credit risk, and loan portfolio structure. If a semi-parametric perspective was not adopted then it would not be feasible to uncover the effects of these variables, as well as the effects arising from capital and financial structure upon U.S. bank profitability. In addition, the out-of-sample performance of the semi-parametric model is superior to that of the linear model. These results are of importance to policy makers in designing a macro-prudential framework for monitoring the banking system.

Suggested Citation

  • Kanas, Angelos & Vasiliou, Dimitrios & Eriotis, Nikolaos, 2012. "Revisiting bank profitability: A semi-parametric approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 990-1005.
    • Handle: RePEc:eee:intfin:v:22:y:2012:i:4:p:990-1005
    DOI: 10.1016/j.intfin.2011.10.003
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    More about this item

    Keywords

    Bank profitability; U.S.; Determinants; Semi-parametric model; Macro-prudential perspective;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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