Commonality, macroeconomic factors and banking profitability

Serie

• IREA Working Papers

Resumen

• We study banks’ profitability in the US economy by means of dynamic factor models. Our results emphasize the importance of a few common cyclical market factors that greatly determine banking profitability. We conduct exhaustive regressions in a big data set of macroeconomic variables aiming to gain interpretability of our statistical factors. This allows us to identify three main macroeconomic factors underlying banking profitability: the financial burden of households and economic activity; household income and net worth and, in the case of ROA and ROE, corporate indebtedness. We also provide an integrated perspective to analyse banks’ profitability dynamically and to inform policymakers concerned with financial stability issues, for which banks’ profitability is fundamental. Our models allow us to provide several rankings of vulnerable financial institutions considering the common market forces that we estimate. We emphasize the usefulness of such an exercise as a market-monitoring tool.

autores

• Joaqui-Barandica, Orlando
• Manotas, Diego
• Uribe, Jorge Mario

fecha de publicación

• 2021

Área temática

• E44 - Mercados financieros y macroeconomía
• G20 - Instituciones y servicios financieros: Generalidades
• G21 - Bancos; Instituciones de depósito; Instituciones Microfinancieras; Hipotecas

Enfoque geográfico

• North America  Continent
• United States  Country

Líneas de investigación

• Banks’ ROA
• Dynamic factors
• Financial cycles
• Indebtedness

Issue

• 202113