Economie et Statistique / Economics and Statistics n° 494-495-496 - 2017The crisis, ten years after

Economie et Statistique / Economics and Statistics
Paru le : 11/10/2017

Can better capitalised banks be more profitable? An analysis of large French banking groups before and after the financial crisis

Olivier de Bandt, Boubacar Camara, Pierre Pessarossi and Martin Rose
Economie et Statistique / Economics and Statistics
Paru le : 11/10/2017

Abstract

The article studies the effect of French banks’ capitalisation on their profitability. It contributes to the debate which has emerged, following the financial crisis, on the impact of the tightening of the regulation of capital (Basel III). Our econometric results show that over the period of 1993-2012, beyond the general trend of profitability which is weaker after the crisis, banks which increase their capital ratio more than the average improve their profitability, without it being possible to distinguish between voluntary increases and those imposed by regulation. All else being equal, a 100 basis point increase of the different capitalisation measures leads to a 3 to 10% increase in the average return on equity (ROE), depending on the measures considered, and to a 7 to 30% increase in the average return on assets (ROA). The positive impact of an increase of capitalisation on ROA is less significant when it is done by issuing shares.

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To cite this article

De Bandt, O., Camara, B., Pessarossi, P. & Rose, M. (2017). Can better capitalised banks be more profitable? An analysis of large French banking groups before and after the financial crisis. Economie et Statistique / Economics and Statistics, 494-495-496, 131-148. DOI: 10.24187/ecostat.2017.494t.1922

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