Bank Performance in Europe and the US: A Divergence in Market-to-Book Ratios
14 Pages Posted: 13 Jan 2020
Date Written: November 28, 2019
Post 2008, the market-to-book ratios of European and US banks have diverged markedly. We use panel regressions to investigate the determinants of the M/B ratios of 112 European and US banks. We show that the underperformance of European banks is mainly driven by non-performing loans and by the negative impact of policy rates on bank interest margins. The higher US bank valuations are mainly driven by higher profitability and better cost efficiency. Our results for European banks stress the importance of timely NPL resolution and imply that low-for-long monetary policy may harm bank health.
Keywords: market-to-book ratio, European banks, US banks, franchise value, bank performance
JEL Classification: G21, G28, E52
Suggested Citation: Suggested Citation