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Understanding the profitability gap between euro area and US global systemically important banks

Author

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  • Martín Fuentes, Natalia
  • Di Vito, Luca
  • Leite, João Matos

Abstract

This investigation starts with the observation that, over the last decade, profitability rates reported by euro area (EA) banks have remained, on average, persistently below those reported by peer banks in the United States (US). In particular, banks’ return on equity (ROE) has fluctuated around 5% in the EA, but around 10% in the US, indicating a profitability gap of around 5 percentage points. However, while comparisons are frequently made between EA and US banks in academic and political debate, they are not perfect benchmarks, nor should this paper be regarded as aiming for a like-for-like comparison. JEL Classification: G15, G21

Suggested Citation

  • Martín Fuentes, Natalia & Di Vito, Luca & Leite, João Matos, 2023. "Understanding the profitability gap between euro area and US global systemically important banks," Occasional Paper Series 327, European Central Bank.
    • Handle: RePEc:ecb:ecbops:2023327
    as

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    References listed on IDEAS

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    Cited by:

    1. Angeloni, Ignazio & Haselmann, Rainer & Heider, Florian & Pelizzon, Loriana & Schlegel, Jonas & Tröger, Tobias, 2024. "Can Banking Union foster market integration, and what lessons does that hold for capital markets union?," SAFE White Paper Series 107, Leibniz Institute for Financial Research SAFE.

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    More about this item

    Keywords

    Bank profitability; global systemically important (G-SIB) banks; return on equity;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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