Laurent Weill (University of Strasbourg): Does high profitability hamper stability for European banks?

Laurent Weill (University of Strasbourg): Does high profitability hamper stability for European banks?

Co-authors: Pierre Pessarossi (ACPR-Banque de France) and Jean-Luc Thevenon (ACPR-Banque de France)

Abstract

We investigate how high profitability influences the occurrence of bank distress in Europe. We utilize four indicators for high profitability in logit models to explain bank distress with a hand-collected dataset of European bank distresses. We find that high profitability does not reduce the occurrence of bank distress. We obtain limited evidence that high profitability can lead to enhance such occurrence through a time horizon of about 3 years. Our findings therefore qualify the view that bank profitability should be promoted to favor bank stability.

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