Business Model Contributions to Bank Profit Performance: A Machine Learning Approach

Abstract

This paper analyzes the relation between bank profit performance and business models. To assess the profitability of bank business models, we propose a new approach based on machine learning. In particular, we identify bank business models using balance sheet components’ contributions to profitability as a grouping criterion. Thus, in contrast to previous works, the strategy for identifying bank business models is not based on similarities among banks’ asset and liability mixes, but on these mixes’ contributions to profitability. We apply this methodological proposal to the European Union banking system in 1997–2016.