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This study investigates the determinants of the profitability of U.S. banks. Employing quarterly data, this paper further examines the historical and recent trends for all U.S. banks from 1996 to 2019 in the relationship between return and assets (ROA) and other bank internal (or endogenous) profitability contributors such as net interest margin (NIM), loan loss reserves, ratio of non-performing loans to gross loans, and external (or exogenous) macroeconomic variables, such as the 30-year average mortgage rate, Gross Domestic Product (GDP) economic growth rate, unemployment rate, interest rate, inflation rate and openness (i.e., exports + imports/GDP) by using the Generalized Method of Moments (GMM) estimator technique. The results reveal that bank-specific variables, including net interest margin, loan loss reserves and non-performing loans, have a significant impact on bank profitability in the United States. Similarly, the results show that macroeconomic variables, namely the average mortgage rate, economic growth, and unemployment rate, exert significant effects on the U.S. banks’ profitability. The results further indicate that changes in openness are detrimental to bank profitability. The implications are discussed.

SUMMARY We analyse the determinants of coverage ratios and their components [non-performing loans (NPLs) and loss loan reserves] in a large sample of European banks. We find that bank-specific factors, particularly credit risk variables (including forward-looking indicators) and capitalization, matter the most. Coverage ratios adjust insufficiently as asset quality deteriorates, except in high-NPL banks. Capitalization has a positive effect on coverage ratio, pointing to a complementarity between the two buffers. At the country level, specific macroprudential levers and developing NPL secondary markets enhance coverage ratios. Our findings emphasize the importance of micro oversight and call for more stringent macro policies in high-NPL countries.

With the acceptance of the new Basel II banking regulation (implemented in South Africa in January 2008) the search for improved ways of modeling the most important banking activities has become very topical. Since the notion of Levy-process was introduced, it has emerged as an important tool for modeling economic variables in a Basel II framework. In this study, we investigate the stochastic dynamics of banking items that are driven by such processes. In particular, we discuss bank provisioning for loan losses and deposit withdrawals. The first type of provisioning is related to the earnings that the bank sets aside in order to cover loan defaults. In this case, we apply principles from robustness to a situation where the decision maker is a bank owner and the decision rule determines the optimal provisioning strategy for loan losses. In this regard, we formulate a dynamic banking loan loss model involving a provisioning portfolio consisting of provisions for expected losses and loan loss reserves for unexpected losses. Here, unexpected loan losses and provisioning for expected losses are modeled via a compound Poisson process and an exponential Levy process, respectively. We use historical evidence from OECD (Organization for Economic Corporation and Development) countries to support the fact that the provisions for loan losses-to-total assets ratio is negatively correlated with aggregate asset prices and the private credit-to-GDP ratio. Secondly, we construct models for provisioning for deposit withdrawals. In particular, we build stochastic dynamic models which enable us to analyze the interplay between deposit withdrawals and the provisioning for these withdrawals via Treasuries and reserves. Further insight is gained by considering a numerical problem and a simulation of the trajectory of the stochastic dynamics of the sum of the Treasuries and reserves. Since managing the risk that depositors will exercise their withdrawal option is an important aspect of this thesis, we consider the idea of a hedging provisioning strategy for deposit withdrawals in an incomplete market setting. In this spirit, we discuss an optimal risk management problem for a commercial bank whose main activity is to obtain funds through deposits from the public and use the Treasuries and reserves to cater for the resulting withdrawals. Finally, we provide a brief analysis of some of the issues arising from the dynamic models of the banking items derived. Thesis (Ph.D. (Computer, Statistical and Mathematical Sciences))--North-West University, Potchefstroom Campus, 2008.

Thesis (Ph.D. (Computer, Statistical and Mathematical Sciences))--North-West University, Potchefstroom Campus, 2008. With the acceptance of the new Basel II banking regulation (implemented in South Africa in January 2008) the search for improved ways of modeling the most important banking activities has become very topical. Since the notion of Levy-process was introduced, it has emerged as an important tool for modeling economic variables in a Basel II framework. In this study, we investigate the stochastic dynamics of banking items that are driven by such processes. In particular, we discuss bank provisioning for loan losses and deposit withdrawals. The first type of provisioning is related to the earnings that the bank sets aside in order to cover loan defaults. In this case, we apply principles from robustness to a situation where the decision maker is a bank owner and the decision rule determines the optimal provisioning strategy for loan losses. In this regard, we formulate a dynamic banking loan loss model involving a provisioning portfolio consisting of provisions for expected losses and loan loss reserves for unexpected losses. Here, unexpected loan losses and provisioning for expected losses are modeled via a compound Poisson process and an exponential Levy process, respectively. We use historical evidence from OECD (Organization for Economic Corporation and Development) countries to support the fact that the provisions for loan losses-to-total assets ratio is negatively correlated with aggregate asset prices and the private credit-to-GDP ratio. Secondly, we construct models for provisioning for deposit withdrawals. In particular, we build stochastic dynamic models which enable us to analyze the interplay between deposit withdrawals and the provisioning for these withdrawals via Treasuries and reserves. Further insight is gained by considering a numerical problem and a simulation of the trajectory of the stochastic dynamics of the sum of the Treasuries and reserves. Since managing the risk that depositors will exercise their withdrawal option is an important aspect of this thesis, we consider the idea of a hedging provisioning strategy for deposit withdrawals in an incomplete market setting. In this spirit, we discuss an optimal risk management problem for a commercial bank whose main activity is to obtain funds through deposits from the public and use the Treasuries and reserves to cater for the resulting withdrawals. Finally, we provide a brief analysis of some of the issues arising from the dynamic models of the banking items derived. Doctoral