European bank profitability: the Great Convergence?
14 Pages Posted: 9 Feb 2022
Date Written: February 7, 2022
Have Euro Area banks restored viability in the post-crisis era? We investigate profitability convergence for Euro Area banks over the period 2009-2020 using the concepts of beta and sigma convergence and a club clustering algorithm. Our evidence is consistent with a slow catch up of the weaker banks, but we also document that better performing banks converge towards a lower profit level, suggesting a ‘great convergence' towards the middle. Moreover, we identify a cluster of banks exhibiting dismal profit dynamics, indicating the need for a restructuring of part of the Euro Area banking sector.
Keywords: Euro Area banks, bank profitability, beta convergence, sigma convergence, club clustering analysis
JEL Classification: C38, G20, G21.
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