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Study Notes

Banking Profitability (Financial Economics)

Level:
A Level
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 21 Mar 2021

Major UK commercial banks’ profitability has fallen quite significantly since the global financial crisis.

Low profitability reduces the ability of commercial banks to generate fresh capital internally and reduces their resilience to future domestic and external shocks.

Key factors:

  1. Significant rise in regulatory costs
  2. Lower interest rates on loans has reduced trading incomes – for example, a steep fall in mortgage rates
  3. Financial cost of previous misconduct - UK banks put side another £15 billion relating to past misconduct in their 2015 results, reducing pre-tax profits by around 50%. This includes the costs of miss-selling PPI
  4. Commercial banks are now making less money from investment banking services such as currency & commodities trading. Retail banking is traditionally less profitable than the higher risk investment banking side

Statistic: Leading banks ranked by statutory profit or loss before tax in the United Kingdom (UK) in 2014 (in million GBP) | Statista
Find more statistics at Statista

Number of complaints regarding payment protection insurance (PPI) submitted to the Financial Ombudsman in the United Kingdom (UK) from 2010 to 2015

Statistic: Number of complaints regarding payment protection insurance (PPI) submitted to the Financial Ombudsman in the United Kingdom (UK) from 2010 to 2015 | Statista
Find more statistics at Statista

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