Skip Navigation

Cambridge Journal of Economics 2009 33(4):609-632; doi:10.1093/cje/bep025
This Article
Right arrow Full Text Freely available
Right arrow FREE Full Text (PDF) Freely available
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrow Search for citing articles in:
ISI Web of Science (1)
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Tregenna, F.
Related Collections
Right arrow D40 - General
Right arrow G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Right arrow G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Right arrow L10 - General
Right arrow L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
Right arrow O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

This article appears in the following Cambridge Journal of Economics issue: Special Issue: The Global Financial Crisis [View the issue table of contents]

The fat years: the structure and profitability of the US banking sector in the pre-crisis period

Fiona Tregenna*

* Faculty of Economics, University of Cambridge, Sidgwick Avenue, Cambridge, CB3 9DD, United Kingdom

Address for correspondence: email: fmt21{at}cam.ac.uk

Bank profitability in the USA was extremely high in the pre-crisis period, yet this did not prevent the current crisis. It has become clear that these profits were on shaky grounds and also that bank profits were not used to buttress banks’ capital bases. This paper analyses the effects of structure on profitability from 1994 to 2005. Bank-level panel data are used to test the effects of concentration, market power, bank size and operational efficiency on profitability. Efficiency is not found to be a strong determinant of profitability, suggesting that banks’ high profits during this period were not ‘earned’ through efficient performance. Robust evidence is found that concentration increases bank profitability. This holds even when the largest banks are excluded from the sample, suggesting that the relationship between concentration and profitability acts in a generalised structural way and that the higher profits arising from concentration are at the expense of the rest of the economy. The analysis points to various policy implications relevant to the current crisis, in particular in terms of the legitimacy of expectations of the restoration of pre-crisis profit rates and the need for much stronger regulation of the banking sector, especially in terms of the structure of the sector, pricing behaviour and use of profits.

Key Words: Banks • Financial institutions • Profitability • Financial crisis • Concentration • Market structure • Competition

JEL classifications: D4, G21, G34, L10, L11, O16

Manuscript received March 27, 2009; final version received May 7, 2009.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?


This article has been cited by other articles:


Home page
 Cambridge J EconHome page
S. Blankenburg and J. G. Palma
Introduction: the global financial crisis
Camb. J. Econ., July 1, 2009; 33(4): 531 - 538.
[Full Text] [PDF]


Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.