Where Have All the Profits Gone? European Bank Profitability Over the Financial Cycle

35 Pages Posted: 1 Aug 2018

See all articles by Enrica Detragiache

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Thierry Tressel

International Monetary Fund (IMF) - Research Department

Rima Turk-Ariss

International Monetary Fund; Economic Research Forum

Date Written: May 2018

Abstract

The paper investigates EU banks' profitability through the recent financial cycle using banklevelbalance sheet and income statement data. We find that banks that were more successfulat protecting their profits had a less pronounced deterioration in loan quality and a largerimprovement in cost efficiency. They also downsized their assets more aggressively duringthe crisis, and reduced reliance on wholesale funding more markedly post-crisis. Net interestmargins remained broadly stable over the financial cycle, including post-crisis, and there isno clear evidence that aspects of bank business model, such as higher reliance on fees andcommission income, were associated with better profitability post-crisis.

Keywords: Financial crises, Banking sector, Banks, Profits, Financial cycles, European Union, Financial Cycle, Bank Profitability, Financial Crisis, General

JEL Classification: E30, G01, G21

Suggested Citation

Detragiache, Enrica and Tressel, Thierry and Turk-Ariss, Rima, Where Have All the Profits Gone? European Bank Profitability Over the Financial Cycle (May 2018). IMF Working Paper No. 18/99. Available at SSRN: https://ssrn.com/abstract=3221272

Enrica Detragiache (Contact Author)

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Thierry Tressel

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Rima Turk-Ariss

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Economic Research Forum ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

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