Bank Business Models at a glance

The financial market structures and regulations in an ever-changing environment.

The Bank Business Models (BBM) analysis provides researchers and markets participants (i.e. depositors, creditors, rating agencies, regulators and supervisors) with a useful tool to:

  • better understand the nature of risk attached to each bank business model
  • its contribution to systemic risk throughout the economic cycle.


Net Income before Taxes/Total assets
Return on assets (ROA) is an indicator of how profitable a bank is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a bank's management is at using its assets to generate earnings.
Operating expenditure/Operating income
It is a cost efficiency ratio that measures the bank's efficiency. Higher the ratio, lower the cost efficiency
Growth of customer loans year on year
It is the customer loans growth year on year expressed in percentage.
(Equity ratio+average ROA)/standard deviation of ROA
The Z-score, defined as the number of standard deviations by which bank returns have to fall to exhaust bank equity, is considered a proxy for bank soundness
(8%*RWA-Total equity)/Total assets
SRISK measures the capital shortfall of a firm conditional on a severe market decline, and is a function of its size, leverage and risk. SRISK is an estimate of the amount of capital that a financial institution would need to raise in order to function normally if we have another financial crisis

our method

To identify the bank business model, we use the Activity/Funding definition based on an Asset/Liability Approach and clustering methodology and the Statistical Analysis System introduced and explained in Ayadi (2019) and (Ayadi et al, 2016).
Clustering analysis is a statistical technique that assigns a set of observations into a distinct cluster. To run the cluster analysis, a selection of instruments which are the defining activity – funding features of the BM are consdiered: Loans to banks (as % of assets); Debt liabilities (as % of assets); Customer loans (as % of assets); Trading assets (as % of assets); Derivative exposures (as % of assets).

About the Founder

Rym Ayadi is Honorary Professor at CASS Business School, Faculty of Finance and Member of the Centre for Banking Research (CBR) at the City University in London, Founding President of the Euro-Mediterranean Economists Association (EMEA) and Founder and Scientific Director of the Euro-Mediterranean Network for Economic Studies (EMNES).


area of interest

In a context of an evolution of market structures and regulations, the banks’ business models analysis can provide market participants, depositors, creditors, regulators and supervisors with a useful tool to better understand the nature of risk attached to each bank business model and its contribution to systemic risk throughout the economic cycle.


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