This paper uses a newly constructed dataset including financial statement information of 311 banks in the euro area to analyse the evolution of bank profitability before and after the Global Financial Crisis and the subsequent European crisis. We first document the general trends in the changes in banks' profitability with a particular focus on country and bank heterogeneity. We find that the profitability of banks in different parts of the monetary union was hit by multiple shocks of different nature. Based on this, we then propose an econometric analysis of the drivers behind the evolution of bank profitability by discriminating factors relative to macroeconomic conditions, bank funding and portfolio structures, and new banking regulations in the euro area.JEL Classification: G21, G28, G33, L25 Keywords: bank, profit, return on asset, bank regulation, bank business model * We thank members of the Economics, Strategy and Banking department at the European Stability Mechanism for very fruitful discussions. Special thanks go to Antonello D'Agostino, Aitor Erce and Paolo Fioretti. We also thank the scientific committee of 2015 IFABS conference.
This paper uses a newly constructed dataset including financial statement information of 311 banks in the euro area to analyse the evolution of bank profitability before and after the Global Financial Crisis and the subsequent European crisis. We first document the general trends in the changes in banks' profitability with a particular focus on country and bank heterogeneity. We find that the profitability of banks in different parts of the monetary union was hit by multiple shocks of different nature. Based on this, we then propose an econometric analysis of the drivers behind the evolution of bank profitability by discriminating factors relative to macroeconomic conditions, bank funding and portfolio structures, and new banking regulations in the euro area.JEL Classification: G21, G28, G33, L25 Keywords: bank, profit, return on asset, bank regulation, bank business model * We thank members of the Economics, Strategy and Banking department at the European Stability Mechanism for very fruitful discussions. Special thanks go to Antonello D'Agostino, Aitor Erce and Paolo Fioretti. We also thank the scientific committee of 2015 IFABS conference.
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