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Determinants of Bank Profitability in the Euro Area: Has Anything Changed?

Author

Listed:
  • Mariarosa Borroni

    (Dipartimento di Scienze Economiche e Sociali, Università Cattolica)

  • Mariacristina Piva

    (Dipartimento di Scienze Economiche e Sociali, Università Cattolica)

  • Simone Rossi

    (Dipartimento di Scienze Economiche e Sociali, Università Cattolica)

Abstract

During the recent financial crisis bank profitability has become an element of strong concern for regulators and policymakers; in fact, both self-financing strategies and capital increases - necessary to provide a higher level of capitalization - rely on the ability of a bank to generate profits. However, the determinants of bank profitability, which seemed to be unequivocally identified by previous literature, appear to have changed under the effect of regulatory and competitive dynamics. We test this hypothesis on commercial, cooperative and saving banks, employing a random effect panel regression on a dataset comprising bank-level data and macroeconomic information (covering the period 2006-2013) for nine countries of the Euro area. Our findings suggest that after a period of "irrational exuberance" in which credit growth and high leverage were seen as proper and fast ways to boost profitability, a sound financial structure and a wiser and objective credit portfolio management have become the main drivers to ensure higher returns.

Suggested Citation

  • Mariarosa Borroni & Mariacristina Piva & Simone Rossi, 2016. "Determinants of Bank Profitability in the Euro Area: Has Anything Changed?," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1619, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    • Handle: RePEc:ctc:serie2:dises1619
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Financial crisis; Bank profitability; Euro Area;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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