Do Bank Profits Converge?
University of Wales System - Bangor University
University of Glasgow - Glasgow Business School
Bangor University, Bangor Business School
John O. S. Wilson
University of St. Andrews
November 20, 2009
This paper examines the determinants and convergence of bank profitability in eight European Union member countries, between 1992 and 2007, using a dynamic panel model. There is evidence of persistence of abnormal bank profit from one year to the next. Average profitability was higher in banks that are strongly capitalised, efficient and diversified. The persistence of EU bank profit was lower in 1999-2007 than it was in 1992-98 in six of the eight countries. This suggests there has been an increase in the intensity of competition and speed of convergence of profits towards their long-run equilibrium values. These developments are attributed to improvements in the integration of financial markets within the EU, following the introduction of the euro in 1999, and the implementation of the Financial Services Action Plan.
Number of Pages in PDF File: 28
Keywords: Banking, competition, convergence, dynamic panel estimation, entry, integration, profitability, persistence
JEL Classification: G21 L11working papers series
Date posted: November 22, 2009 ; Last revised: July 27, 2010
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