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Do Bank Profits Converge?

Author

Listed:
  • John Goddard

    (Bangor University)

  • Hong Liu

    (Bangor Business School)

  • Phil Molyneux

    (Bangor University)

  • John O.S. Wilson

    (University of St Andrews)

Abstract
This paper examines the determinants and convergence of bank profitability in eight European Union member countries, between 1992 and 2007, using a dynamic panel model. There is evidence of persistence of abnormal bank profit from one year to the next. Average profitability was higher in banks that are strongly capitalised, efficient and diversified. The persistence of EU bank profit was lower in 1999-2007 than it was in 1992-98 in six of the eight countries. This suggests there has been an increase in the intensity of competition and speed of convergence of profits towards their long-run equilibrium values. These developments are attributed to improvements in the integration of financial markets within the EU, following the introduction of the euro in 1999, and the implementation of the Financial Services Action Plan.

Suggested Citation

  • John Goddard & Hong Liu & Phil Molyneux & John O.S. Wilson, 2010. "Do Bank Profits Converge?," Working Papers 10004, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    • Handle: RePEc:bng:wpaper:10004
    as

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    File URL: http://www.bangor.ac.uk/business/docs/BBSWP10004.pdf
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    References listed on IDEAS

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