Determinants of and Differences in U.S. and Foreign Commercial Bank Profitability

Wenjuan Xie and Angela Deng

We study the factors driving the differences in profitability of large commercial banks in the United States and in EU and non-EU countries from 2004-2014. Most relevant bank-specific and macroeconomic variables are reviewed and selected from the literature. Pooled sample estimation and panel data tests are conducted associating these factors with Return on Equity. Our main findings are: macroeconomic factors have more impact on U. S. banks’ profitability, while size and GDP growth significantly impact foreign banks’ profitability. In comparing U. S. and EU banks, we find significant differences in the explanatory power of size, cash adequacy and real interest rate. The significance and contribution of this study are from the advancement of knowledge in the frontier of banking industry performance research and from the innovative direct comparison between U. S. and EU banks.

DOI : https://doi.org/10.21102/gefj.2017.03.101.02