Sustainable Banks - Prudent and Profitable

Abstract

We explore the observable characteristics of sustainable banks, using a hand-collected dataset comprising of all public US bank holding companies, for the period 1999-2011. Our results indicate that sustainable banks are characterized by superior performance, more prudent behavior and a business model oriented towards financing industry and commerce. Specifically, they exhibit higher ROE and ROA, and have a higher market-to-book ratio which cannot be entirely accounted for by the higher ROE. They also have lower ratios of risk-weighted assets to total assets and finance more of their loans with deposits. Lastly, they have higher ratios of commercial and industrial loans to total loans. Overall, our results are consistent with the view that sustainable banks actively try to improve the risk-return profile of their whole operations, taking advantage of the benefits sustainability confers.

Keywords: Banking, Corporate Social Responsibility (CSR), Socially Responsible Investing (CSI), Sustainability

JEL Classification: G10, G21, M14