The profitability and distance to distress of European banks: do business choices matter?

This paper examines which business choices are more likely to increase the profitability and distance distress of banks, whether changing model pays off. We find that with use customer deposits equity, decrease size; also, top performers tend have a high relationship banking orientation and/or operate retail focused model. Furthermore, we document income diversification only bears positive impact on banks highly banking, size negative effect these as well; additionally, low significantly benefit from deposits. With respect effects changes, shifts diversified funding either or large models improve in medium term. Finally, evidence benefited internal capital markets during twin financial crisis by tapping into low-cost subsidiaries. Our results robust changes our baseline account for endogeneity persistency issues.