Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297377 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2937
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We construct a novel measure of bank performance, investigate its determinants, and show that it affects bank resilience, lending behaviour and real outcomes. Using confidential and granular data, we measure performance against a market-based benchmark portfolio that mimics individual banks' interest rate and credit risk exposure. From 2015 to mid-2022, euro area banks underperformed market benchmarks by around e160 billion per year, amid substantial heterogeneity. Structural factors, such as cost inefficiencies, rather than monetary or regulatory measures, were the main driver of bank underperformance. We also show that higher edge banks are less reliant on government support measures and less likely to experience the materialisation of interest rate or credit risk when hit by shocks. Using the euro area credit register and the pandemic shock for identification, we find that higher edge banks originate more credit, direct it towards more productive firms, and support more firm investment.
Subjects: 
banking
maturity transformation
replicating portfolio
credit supply
JEL: 
E52
G12
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6685-6
Document Type: 
Working Paper

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