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Bank profitability during recessions

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  • Bolt, Wilko
  • de Haan, Leo
  • Hoeberichts, Marco
  • van Oordt, Maarten R.C.
  • Swank, Job

Abstract

This paper contributes to the literature on the relation between bank profitability and economic activity. When allowing for stronger co-movement of bank profit with economic activity during deep recessions, we find a much larger impact of output growth on bank profitability than commonly found in the literature. Among the different components of bank profit, loan losses are the main driver of this result. We also find long-term interest rates in previous years to be important determinants of bank profit in times of high economic growth. Our findings are robust to the use of aggregate or individual bank data.

Suggested Citation

  • Bolt, Wilko & de Haan, Leo & Hoeberichts, Marco & van Oordt, Maarten R.C. & Swank, Job, 2012. "Bank profitability during recessions," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2552-2564.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:9:p:2552-2564
    DOI: 10.1016/j.jbankfin.2012.05.011
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    More about this item

    Keywords

    Bank profitability; Business cycle; Loan losses; Recession;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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