Dimitris K. Chronopoulos

The Dynamics of US Bank Profitability

We examine the determinants of profitability for a large sample of US banks over the period 1984–2010. Specifically, we assess the extent to which short-run profits persist, and whether such persistence is affected by changes in regulation and the recent financial crisis. Our findings suggest that the competitive process reduces positions of abnormal profitability, albeit this is not immediate. There is also evidence that changes in regulation enacted during the 1990s affected both the level and persistence of bank profitability. The financial crisis of 2007–2010 appears to have resulted in an increase in the persistence of bank profitability.

Are there any cost and profit efficiency gains in financial conglomeration? Evidence from the accession countries

Diversified banks should benefit from an efficient allocation of resources, debt coinsurance and scope economies. At the same time, critics of diversification question these advantages pointing to agency problems such as managerial entrenchment and empire building that could also lead to diversification but for the ‘wrong’ reasons. This paper sheds further light on the issue of bank diversification by taking a direct look into how efficiently financial conglomerates operate and by measuring to what extent size and other bank- and market-specific factors matter in evaluating the relationship between diversification and efficiency. We focus on banks operating in the accession countries over the period 2001–2007 and estimate their cost and alternative profit efficiencies using a data envelopment analysis estimator. The results indicate that banks suffer from relatively high cost and profit inefficiencies and that there are noticeable differences in the efficiency levels across countries. Concerning banks’ degree of diversification, we find strong evidence to suggest that more diversified institutions are more likely to be cost- and profit-efficient and that size is a key factor in explaining best practice, particularly on the profit side.

Post-merger Bank Efficiency and Stock Market Reaction: the Case of the US versus Europe

The past two decades have been characterized by a wave of bank mergers that have reshaped both the US and the European financial systems. Specifically, the number of banks fell by almost 40 per cent in Europe and by over 45 per cent in the US between 1985 and 2003. The possibility that these bank mergers will yield efficiency gains for the consolidated banks has long been a subject of debate; yet empirical evidence documented in the literature up to 2000 does not provide an unambiguous answer to this question (see Amel et al. 2004). The consensus view from more recent studies is that bank mergers and acquisitions (M&As) can improve efficiency (see DeYoung et al. 2009). However, a probably more important issue is whether or not stock markets can accurately forecast these efficiency gains upon the announcement of an M&A operation.

Spreading Civilizations: Ancient Colonialism and Economic Development Along the Mediterranean

This paper investigates the legacy of ancient colonialism (by the Phoenicians, Greeks and Etruscans) in shaping the modern-day population concentration and economic activity of the Mediterranean region. By combining historical data on ancient colonies and current data on population density and night light emission, we find that geographic areas colonised by these civilisations tend to have higher population concentration and economic activity in the present day. We also show that ancient colonialism affected the origin and evolution of the urban system of the Mediterranean.This paper investigates the long-term effects of ancient colonialism on economic development. In an early form of colonisation, the Phoenicians, Greeks and Etruscans spread around the Mediterranean from the 11 to the 6 centuries BCE transferring their superior technologies and institutions to new geographic areas. We find that geographic areas colonised by these civilisations are more developed in the present day. Our results hold after controlling for country fixed effects and splitting the sample by continent. Moreover, our findings are robust to the use of alternative measures and different historical data sources on ancient colonies. Overall, the results suggest that ancient colonialism along the Mediterranean left a positive economic legacy which persists today despite two millennia of historical turbulence.

Taxation and Financial Intermediation: Evidence from a Quasi-Natural Experiment

In this study, we investigate the impact of taxes on bank loan supply, loan and deposit pricing, and the monitoring effort of banks. Using the exogenous variation of tax imposed on gross profits of Japanese banks operating in Tokyo (known as the Tokyo bank tax), we find that affected banks increase both net interest margins, and net interest and fee margins. Depositors are most affected by adjustments to interest and fee rates at banks following the imposition of the tax. The imposition of the Tokyo bank tax also reduces the credit supply of affected banks relative to non-affected counterparts. Moreover, banks subject to the Tokyo bank tax appear to reduce effort devoted to the monitoring of existing borrowers.