What Drives Bank Peformance?

11 Pages Posted: 14 Jun 2021 Last revised: 25 Apr 2022

See all articles by Luca Guerrieri

Luca Guerrieri

Board of Governors of the Federal Reserve System

James Harkrader

Board of Governors of the Federal Reserve System

Date Written: February, 2021

Abstract

Focusing on some key metrics of bank performance, such as revenues and loan charge-off rates, we estimate the fraction of the observed variation in these metrics that can be attributed to changes in economic conditions. Macroeconomic factors can explain the preponderance of the fluctuations in charge-off rates. By contrast, bank-specific, idiosyncratic factors account for a sizable share of the variation in bank revenues. These results point to importance of bank-specific business models as a driver of performance.

Keywords: pre-provision net revenues, Backcasting, Banking factors, Charge-offs, Macroeconomic factors, Principal components

JEL Classification: E30, G21

Suggested Citation

Guerrieri, Luca and Harkrader, James, What Drives Bank Peformance? (February, 2021). FEDS Working Paper No. 2021-9, Available at SSRN: https://ssrn.com/abstract=3865406 or http://dx.doi.org/10.17016/FEDS.2021.009

Luca Guerrieri (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2550 (Phone)

James Harkrader

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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