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Exploring The Relationship Between Bank Profitability And State Intervention Policies In European Banking Sector

Author

Listed:
  • TRENCA Ioan

    (Babes-Bolyai University Cluj-Napoca)

  • PETRIA Nicolae

    (Lucian Blaga University of Sibiu)

  • LUDUSAN Emilia-Anuta

    (Babes-Bolyai University Cluj-Napoca)

Abstract

Banking crisis, as well as the interventionist assistance of governments to stabilize their economies have generated controversies among the experts in the field. The purpose of this article is to determine the impact of rescue measures on bank profitability. For this purpose we developed a panel consisting of 81 european commercial banks that captures the relationship between bank profitability and state intreventions policies. We explore a large set of bank-level, macroeconomic and market variables during q42008-q42013 period. As far as we know this topic isn't covered in commercial banking empirical standpoints. In order to highlight the evolution of profitability we use specific banking variables, market structure and macroeconomic factors. There are two theories about the interventions of governments in banking sector - the first one involves a positive effect of rescue measures due to improvement of banks' profitability ratios and charter value and the second which involves a negative effect as a result of increased risk-taking. We find a positive relationship between state intervention policies and profitability in European banking sector during q42008-q42013 period. Our results suggest that on short term (5 years) dominate the positive effects.

Suggested Citation

  • TRENCA Ioan & PETRIA Nicolae & LUDUSAN Emilia-Anuta, 2015. "Exploring The Relationship Between Bank Profitability And State Intervention Policies In European Banking Sector," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 67(5), pages 104-115, September.
    • Handle: RePEc:blg:reveco:v:67:y:2015:i:5:p:104-115
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    References listed on IDEAS

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    More about this item

    Keywords

    profitability; ROA; state interventions; banking crisis;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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