Impact of european banking regulations on the profitability of european listed banks and levers for improvement

Abstract

In this thesis, we explore the impact of various European banking regulations on the profitability of systemic listed banks across Europe. Our study spans the period from 2000 to 2024, during which the regulatory landscape evolved significantly with the introduction of Basel III, AML, CSRD, FRTB, IFRS 9, and MiFID II. Utilizing panel data regression models, we examine how these regulations have influenced key financial performance indicators: Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM). We find that the impact of these regulations varies depending on the bank's business model, with universal banks, investment banks, cooperative banks, holding banks, and commercial banks each responding differently to regulatory pressures. Our findings suggest that while regulations like Basel III have enhanced financial stability, they have also imposed significant capital constraints, particularly affecting banks reliant on traditional interest income. Conversely, compliance with AML regulations, despite its costs, has been shown to improve banks' reputational capital, fostering long-term profitability. Moreover, we identify critical levers for improving bank profitability within the regulatory environment. These include optimizing capital allocation, diversifying income streams, and investing in advanced risk management technologies. Our research not only confirms existing theoretical frameworks but also introduces practical leadsfor banks to adapt and thrive under stringent regulatory requirements. By analysing the intersection of regulation and profitability, this thesis contributes to a nuanced understanding of the challenges and opportunities faced by European banks in a highly regulated environment. Our insights provide valuable guidance for policymakers, bank managers, and financial regulators in optimizing the balance between regulatory compliance and financial performance.