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Can better capitalised banks be more profitable? An analysis of large French banking groups before and after the financial crisis

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  • Olivier de Bandt
  • Boubacar Camara
  • Pierre Pessarossi
  • Martin Rose

Abstract

[eng] The article studies the effect of French banks’ capitalisation on their profitability. It contributes to the debate which has emerged, following the financial crisis, on the impact of the tightening of the regulation of capital (Basel III). Our econometric results show that over the period of 1993-2012, beyond the general trend of profitability which is weaker after the crisis, banks which increase their capital ratio more than the average improve their profitability, without it being possible to distinguish between voluntary increases and those imposed by regulation. All else being equal, a 100 basis point increase of the different capitalisation measures leads to a 3 to 10% increase in the average return on equity (ROE), depending on the measures considered, and to a 7 to 30% increase in the average return on assets (ROA). The positive impact of an increase of capitalisation on ROA is less significant when it is done by issuing shares.

Suggested Citation

  • Olivier de Bandt & Boubacar Camara & Pierre Pessarossi & Martin Rose, 2017. "Can better capitalised banks be more profitable? An analysis of large French banking groups before and after the financial crisis," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 494-495-4, pages 131-148.
    • Handle: RePEc:nse:ecosta:ecostat_2017_494-495-496_8
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    References listed on IDEAS

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    1. André Arnaud Enguene & Issidor Noumba, 2024. "Does bank capital boost the productivity of the banking industry in EMCCA? A critical survey," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-26, June.

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