The performance and risk of banks in the U.S., Europe and Japan post-financial crisis

  • Published December 15, 2016
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    Volume 13 2016, Issue #4 , pp. 75-94
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    6 articles

The author compares the performance, growth, asset mix, risk, operational efficiency, profitability and capital holdings of the 20 largest banks in Japan, the U.S. and Europe from 2003-2015. Total revenue for each set of banks has declined by a full 20% since 2011. European banks are in a multiyear downward spiral, evidenced by dramatic declines in market capitalization, the book value of loans and total assets, and the level of deposits. Japanese bank performance is stagnant compared to Europe and the U.S. Both Japanese and European banks are particularly challenged by persistently lower net interest margins compared to U.S. banks.The percentage of impaired, restructured or nonperforming loans soared for U.S. and European banks post-crisis, but barely rose in Japan. All banks hold more Tier 1 capital than required by the Basel III accord, which has led to profound declines in their net profit margins and return on equity. Modeling the conditional volatility of U.S., Japanese and European banks provides evidence consistent with the idea that U.S. banks continue to exhibit a more robust post-crisis recovery, while Japanese and European banks continue to experience crisis-level conditions. Any evidence that Japanese and European banks have recovered from the financial crisis is fragile at best.

Keywords: commercial banking, bank capital, regulation, risk, stock returns, profits.
JEL Classification: G18, G21

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