International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

 

Determinants of the Profitability of the US Banking Industry*
Paolo Saona Hoffmann

Abstract
This paper seeks to examine the determinants of the profitability of the US banks during the period 1995-2007. The empirical analysis combines bank specific (endogenous) and macroeconomic (exogenous) variables through the GMM system estimator. The empirical findings document a negative link between the capital ratio and the profitability, which supports the notion that banks are operating over-cautiously and ignoring potentially profitable trading opportunities. Additionally, they point to a non-monotonic relationship between the capital ratio and profitability, supporting the efficiency-risk and franchise-value hypotheses. The analysis also records that economies of scale do not occur if one takes into consideration the size of the bank.

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