Bank profitability and economic growth

Is bank profitability beneficial to economic growth? While policymakers have shown major concerns for low levels of bank profitability, the influence of bank profitability on economic growth remains an open question. While it can favor economic growth by strengthening financial stability, it can also result from lower competition and as such depress economic growth. We provide the first empirical investigation that assesses the impact of bank profitability on economic growth. We examine a panel of 132 countries during the period 1999−2013 using generalized method of moments (GMM) dynamic panel techniques. We document a positive impact of bank profitability on economic growth in both the short-run and the long-run. These findings are robust to controlling for the dynamics of banks’ profits. They are also robust to alternative measures, specifications, and time periods.