What drives bank earnings? Evidence for 28 banking sectors
POUW, Laurence
What drives bank earnings? Evidence for 28 banking sectors - Applied Economics Letters Volume , number , .
The crisis has revived interest in the determinants of bank earnings. We investigate the relationship between profitability and balance sheet composition of 28 national banking sectors. Using Statistical Cost Accounting, we find a plausible pattern of individual assets’ and liabilities’ contributions to earnings and costs. Both wholesale and retail activities yield positive margins, while interbank lending and customer deposits are the most expensive funding sources. Wholesale finance has a positive effect on profitability, which may explain banks’ increasing reliance on it prior to the crisis. Economic growth and unemployment have a procyclical impact, while inflation tends to erode profitability.
banking
earnings
social cost accounting
What drives bank earnings? Evidence for 28 banking sectors - Applied Economics Letters Volume , number , .
The crisis has revived interest in the determinants of bank earnings. We investigate the relationship between profitability and balance sheet composition of 28 national banking sectors. Using Statistical Cost Accounting, we find a plausible pattern of individual assets’ and liabilities’ contributions to earnings and costs. Both wholesale and retail activities yield positive margins, while interbank lending and customer deposits are the most expensive funding sources. Wholesale finance has a positive effect on profitability, which may explain banks’ increasing reliance on it prior to the crisis. Economic growth and unemployment have a procyclical impact, while inflation tends to erode profitability.
banking
earnings
social cost accounting