Bank Profitability and Financial Stability
IMF Working Papers, January 11, 2019
Source details
- Canonical URL
- Bank Profitability and Financial Stability
Other formats
Bibliographic details
- Authors: TengTeng Xu, Kun Hu, Udaibir S Das
- Published: January 11, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484390078.001
Overview
- Publication title: Bank Profitability and Financial Stability
- Authors: TengTeng Xu, Kun Hu, Udaibir S Das
- Date: January 11, 2019
- Series: Working Paper No. 2019/005; Issue: 005; Volume: 2019; Pages: 54
- DOI: https://doi.org/10.5089/9781484390078.001
- ISBN: 9781484390078
- ISSN: 1018-5941
Research objective and approach
- Analyze how bank profitability impacts financial stability from theoretical and empirical perspectives.
- Theoretical component: develop a model exploring the role of non-interest income and retail-oriented business models in the profitability–stability relationship.
- Empirical component: panel regression analysis of empirical determinants of bank risks and profitability for 431 publicly traded banks (U.S., advanced Europe, and GSIBs) from 2004 to 2017.
Key empirical findings
- Profitability is negatively associated with:
- a bank’s contribution to systemic risk.
- a bank’s idiosyncratic risk.
- Over-reliance on the following is associated with higher risks:
- non-interest income (market-based NII activity)
- wholesale funding
- leverage
- Low competition is associated with:
- low idiosyncratic risk
- high contribution to systemic risk
- Key factors that influence bank profitability:
- the problem loans ratio
- the cost-to-income ratio
Policy implications and recommendations
- Policy makers should better understand the source of bank profitability, with particular attention to instances of over-reliance on:
- market-based non-interest income
- leverage
- wholesale funding
Subject tags and keywords (as provided)
- Subjects: Bank soundness, Banking, Econometric analysis, Financial crises, Financial sector policy and analysis, Financial sector stability, Systemic risk, Vector autoregression
- Keywords: bank profitability, Bank soundness, business model, charter value, default probability, Financial sector stability, Finanical stability, Global, idiosyncratic risk, math display, NII activity, non-interest income, objective function, panel regression, price-to-book ratio, problem loan ratio, systemic risk, Vector autoregression, WP
Source: IMF Working Papers — "Bank Profitability and Financial Stability", TengTeng Xu, Kun Hu, and Udaibir S Das, January 11, 2019 (Working Paper No. 2019/005).
Content in this bundle
- Bank Profitability and Financial Stability, WP/19/5, January 2019