The effect of Inflation on European banks' profitability, stability and riskiness

Abstract

This study debates whether the inflation can influence in any way tha banks' profitability, stability and riskiness by take into consideration European commercial banks. In order to address this, a dataset of 101 European commercial banks is examined over a 14-years period, namely from 2005 to 2018. The two steps GMM (General Method of Moments) system estimator is used. Not only the whole sample is examined but also it is subdivided into East-West Europe and Eurozone - Not Eurozone countries. Weighting up the results, inflation has a negative impact to the banks' stability and riskiness but positive impact to the banks' profitability.