Do Bank Profits Converge?

28 Pages Posted: 22 Nov 2009 Last revised: 20 Feb 2014

See all articles by John Goddard

John Goddard

University of Wales System - Bangor University

Hong Liu

University of Aberdeen

Philip Molyneux

University of Sharjah - College of Business Administration

John O. S. Wilson

University of St. Andrews

Multiple version iconThere are 2 versions of this paper

Date Written: November 20, 2009

Abstract

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.

Keywords: Banking, competition, convergence, dynamic panel estimation, entry, integration, profitability, persistence

JEL Classification: G21 L11

Suggested Citation

Goddard, John and Liu, Hong and Molyneux, Philip and Wilson, John O. S., Do Bank Profits Converge? (November 20, 2009). Available at SSRN: https://ssrn.com/abstract=1509868 or http://dx.doi.org/10.2139/ssrn.1509868

John Goddard

University of Wales System - Bangor University ( email )

Bangor, Gwynedd, Wales LL57 2DG
United Kingdom

Hong Liu

University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Philip Molyneux

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

John O. S. Wilson (Contact Author)

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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