{
  "title": "Bank Profitability and Financial Stability",
  "publication": "IMF Working Papers, January 11, 2019",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2019/01/11/bank-profitability-and-financial-stability-46470",
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  "summary": "We analyze how bank profitability impacts financial stability from both theoretical and empirical perspectives. We first develop a theoretical model of the relationship between bank profitability and financial stability by exploring the role of non-interest income and retail-oriented business models",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Publication title: Bank Profitability and Financial Stability\n- Authors: TengTeng Xu, Kun Hu, Udaibir S Das\n- Date: January 11, 2019\n- Series: Working Paper No. 2019/005; Issue: 005; Volume: 2019; Pages: 54\n- DOI: https://doi.org/10.5089/9781484390078.001\n- ISBN: 9781484390078\n- ISSN: 1018-5941"
    },
    {
      "heading": "Research objective and approach",
      "content": "- Analyze how bank profitability impacts financial stability from theoretical and empirical perspectives.\n- Theoretical component: develop a model exploring the role of non-interest income and retail-oriented business models in the profitability–stability relationship.\n- 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."
    },
    {
      "heading": "Key empirical findings",
      "content": "- Profitability is negatively associated with:\n  - a bank’s contribution to systemic risk.\n  - a bank’s idiosyncratic risk.\n- Over-reliance on the following is associated with higher risks:\n  - non-interest income (market-based NII activity)\n  - wholesale funding\n  - leverage\n- Low competition is associated with:\n  - low idiosyncratic risk\n  - high contribution to systemic risk\n- Key factors that influence bank profitability:\n  - the problem loans ratio\n  - the cost-to-income ratio"
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Policy makers should better understand the source of bank profitability, with particular attention to instances of over-reliance on:\n  - market-based non-interest income\n  - leverage\n  - wholesale funding"
    },
    {
      "heading": "Subject tags and keywords (as provided)",
      "content": "- Subjects: Bank soundness, Banking, Econometric analysis, Financial crises, Financial sector policy and analysis, Financial sector stability, Systemic risk, Vector autoregression\n- 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\n\nSource: IMF Working Papers — \"Bank Profitability and Financial Stability\", TengTeng Xu, Kun Hu, and Udaibir S Das, January 11, 2019 (Working Paper No. 2019/005).\n\n---\n\n Content in this bundle\n\n- Bank Profitability and Financial Stability, WP/19/5, January 2019\n  - Bank Profitability and Financial Stability, WP/19/5, January 2019 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Bank Profitability and Financial Stability, WP/19/5, January 2019 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2019/01/11/bank-profitability-and-financial-stability-46470"
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    "Authors: TengTeng Xu, Kun Hu, Udaibir S Das",
    "Published: January 11, 2019",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484390078.001",
    "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",
    "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.",
    "Profitability is negatively associated with:",
    "Over-reliance on the following is associated with higher risks:",
    "Low competition is associated with:",
    "Key factors that influence bank profitability:",
    "Policy makers should better understand the source of bank profitability, with particular attention to instances of over-reliance on:",
    "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",
    "**Bank Profitability and Financial Stability, WP/19/5, January 2019**"
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