Bank Performance in Europe and the US: A Divergence in Market-to-Book Ratios

14 Pages Posted: 13 Jan 2020

See all articles by Mathieu Simoens

Mathieu Simoens

Ghent University - Department of Economics

Rudi Vander Vennet

Ghent University - Department of Financial Economics

Date Written: November 28, 2019

Abstract

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

Simoens, Mathieu and Vander Vennet, Rudi, Bank Performance in Europe and the US: A Divergence in Market-to-Book Ratios (November 28, 2019). Available at SSRN: https://ssrn.com/abstract=3509057 or http://dx.doi.org/10.2139/ssrn.3509057

Mathieu Simoens (Contact Author)

Ghent University - Department of Economics ( email )

Belgium

Rudi Vander Vennet

Ghent University - Department of Financial Economics ( email )

Ghent, 9000
Belgium
+32 9 264 35 13 (Phone)
+32 9 264 35 92 (Fax)

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