Determinants of Bank Profitability: Comparison between the USA and Canada

This paper summarizes findings of an empirical study on determinants of banks’ profitability in the USA and Canada. The time periods are divided into pre-subprime crisis, during-subprime crisis and post-subprime crisis to see if the determinants change because of the financial crisis. The analysis focuses on macroeconomic, industry-specific and bank-specific factors. Data covers 197 US banks (with total assets above USD $2 billion) and eight Canadian banks (with total assets above CAD $2.5 billion). We used the ordinary least squares estimation technique to estimate the significance of the factors in MATLAB. We found that in both countries the bank performance is mostly driven by bank-specific characteristics and that macroeconomic and industry-specific factors are less statistically significant. While some variables have the same effect on the profitability, others, such as Bank Age and Bank Size, have the opposite effect. The previous bank performance is also an important factor, especially in defining NIM