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1 – 4 of 4John Y. Lee, Glenn Growe, Marinus DeBruine and Inkyung Cha
This paper examines how the determinants of bank performance and profitability were affected by the recent systemic banking crisis. We explore the contemporaneous determinants of…
Abstract
Purpose
This paper examines how the determinants of bank performance and profitability were affected by the recent systemic banking crisis. We explore the contemporaneous determinants of U.S. regional banks’ performance and profitability before, during, and after the crisis years.
Methodology/approach
We analyze the determinants of three measures of profitability: return on assets, return on equity, and net interest margins.
Findings
We found evidence of lowered bank profitability, credit quality, and scale of lending activities well after the defined crisis period. This coincides with historical evidence that downturns associated with a financial crisis are more severe than downturns due to short-run fluctuations in the business cycle. Banks responded to the crisis by increasing their equity and liquidity levels.
Originality/value
This paper is the first to compare the determinants of bank profitability during the precrisis, crisis, and postcrisis periods. Our study extends previous work by using data from U.S. banks, adding coverage of the years since the banking crisis ended, and considering profitability determinants not previously explored in studies on the effects of the crisis.
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Keywords
Glenn Growe, Marinus DeBruine, John Y. Lee and José F. Tudón Maldonado
This paper examines the profitability and performance measurement of U.S. regional banks during the period 1994–2011, using the GMM estimator technique. Our study extends prior…
Abstract
Purpose
This paper examines the profitability and performance measurement of U.S. regional banks during the period 1994–2011, using the GMM estimator technique. Our study extends prior research by including several factors not previously considered using U.S. data.
Approach
We use bank-specific, industry-specific, and macroeconomic determinants of profitability contemporaneous with our performance indicators. We follow the accounting fundamental analysis path in explaining the bank performance.
Findings
Among the performance measures, the efficiency ratio and provisions for credit losses are negatively and equity scaled by assets is positively related to profitability. However, these relationships either reverse (efficiency ratio and provisions for credit losses) or become insignificant (equity scaled by assets) when the target becomes change in profitability. The level of nonperforming assets is negatively related to profitability across all measures of profitability used. Macroeconomic variables are largely unrelated to profitability during the year they are measured. However, they have a significant relationship with earnings change measures, suggesting they have a lagged effect on profitability. The slope of the yield curve is especially strong in this regard.
Originality
We use our determinants to model changes in bank profitability one year ahead, in addition to including several factors not previously considered, using the predictive focus of the fundamental analysis research.
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