Capital Structure, Deposits and Credit Risk in Banking: A Study of European and US Banks

The results indicate no relationship between bank deposits and credit risk. However, they suggest that as deposits increase, loans also rise, while highlighting a negative relationship between non-performing loans and loan growth. Additionally, it reveals that banks with a larger market share in the US increase their deposit stock, whereas the effect is reversed in Europe.</p><p dir="ltr">The literature on the impact of capital structure on bank performance in the US and Europe is limited.

Therefore, this study aims to add to the literature and evaluate the influence of capital structure on bank performance. Additionally, it engages with the debate surrounding the effects of increased equity on bank performance. The Generalised Method of Moments estimation technique is used to analyse data from 274 US banks and 197 European banks from 2012 to 2022.

The results align closely with the pecking order theory in both Europe and the US. Furthermore, it suggests that high equity levels negatively affect bank performance.</p><p dir="ltr">The third paper shows the relevance of bank-specific and macroeconomic variables in capital structure decisions in the banking sectors of the US and European markets. It also highlights differences in these factors between small and large banks across both markets, while examining the speed of deposit adjustments within each category.

The Generalised Method of Moments technique is employed with data from 2010 to 2022 for 59 and 325 commercial banks in the USA and Europe, respectively. The results indicate that there are no universal drivers, as the markets differ; however, they support the market perspective on banking capital structure theories. Additionally, it reveals that the adjustment speed of bank deposits varies by size and market.

It further sheds light on the impact of COVID–19 economic ripples on leverage.</p>