The Effect of Bank-Specific and Macro-Economic Variables on Bank Profitability: Case of USA.

The main aim of this thesis is to determine the effect of both bank-specific and macro-economic variables on the profitability of the US banking sector. In order to accomplish this, ROA and ROE were considered as profitability indicators while bank size, liquidity, capital adequacy, assets quality, interest rate, inflation rate and gross domestic product where considered as independent variables. This study uses fifteen US banks ranked according to total assets from 2001 to 2015. During the period for this study, US encountered a devastating financial crisis that affected the whole financial sector. In order to capture the effect of this crisis, I introduced a dummy variable for the crisis period from 2007 to 2010. When the regression analysis was done considering ROA as the dependent variable, bank size and assets quality were negative and significant. Interest rate and GDP growth were positive and significant while inflation, capital adequacy and liquidity where insignificant. Using ROE as dependent variable, capital adequacy became significant and the other results remained the same. Keywords: Bank Profitability, USA, Liquidity, Capital Adequacy, Financial Crises