Abstract
This chapter focuses on banks in Europe and the USA, investigating how the new trends affecting banking business affect bank profitability. In order to analyse this phenomenon, we take into consideration a particular sample composed of the banks included in two relevant indexes for the period 2006–2016. We then extract the balance sheet data on these banks from the Bloomberg database. Using cluster analysis, we identify three clusters of banking groups based on the number of employees and the number of branches. Subsequently, we analyse how the two major drivers of the evolution of bank activities, that is, technological advances (digital banking) and the need to comply with increasingly stronger prudential regulation, have changed the ways banks operate and are able to be profitable.
The main results suggest that the size of banks affects bank profitability and that investments in technology and capital requirements have different effects on profitability. These findings have strategic implications for bank managers, regulators, and supervisors due to the impact of these drivers on banking business and bank profitability, and the new challenges they entail.
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Notes
- 1.
Bloomberg is an online database providing current and historical financial quotes, business newswires, and descriptive information, research, and statistics on over 52,000 companies worldwide.
- 2.
For the data collection process, we chose to use the currency that was used by the greatest number of banks in the sample so as to minimize any possible conversion problem. However, the data are processed as a ratio, so the unit of measurement becomes irrelevant.
- 3.
Stata is an integrated statistical software package that provides tools for data analysis, data management, and graphics. It was created in 1985 by StataCorp.
- 4.
In this study, we are interested in analysing time-invariant variables. Random effects models estimate the effects of time-invariant variables, while fixed effects models are not useful for estimating the effects of variables that do not change over time. Moreover, we decided to adopt a random effects model due to the fact that the subjects of our analyses—banks—do in fact change only slightly, or not at all, over time. In this case, a fixed effects model may not work very well, or even at all, as there needs to be within-subject variability in the variables; otherwise the standard errors from fixed effects models may be too large to tolerate (Allison 2009).
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Acknowledgements
The research for this study was financially supported by the Polo Scientifico e Didattico di Studi sull’Impresa a Vicenza (Italy), project ‘#BIT: Business Innovation and digital Transformation – Area Finance’.
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Chesini, G., Giaretta, E. (2018). Analysis of the Main Trends in European and US Banks and Their Impact on Performance. In: García-Olalla, M., Clifton, J. (eds) Contemporary Issues in Banking. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-90294-4_19
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