Measuring Commercial Bank Profitability: Proceed With Caution (ICPSR 21301)

Version Date: Nov 8, 2007

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Principal Investigator(s):
R. Alton Gilbert, Federal Reserve Bank of St. Louis; David C. Wheelock, Federal Reserve Bank of St. Louis

https://doi.org/10.3886/ICPSR21301.v1

Version V1

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Summary

The federal tax code creates challenges for comparing the profit rates of different banks on a consistent basis. The earnings of banks that elect to operate under subchapter S of the federal tax code are not subject to federal corporate income tax, but shareholders of these "S-banks" are taxed on their pro rata share of the entire earnings of the bank. The number of banks electing subchapter S tax treatment has increased rapidly, especially among small banks. The authors use estimates of the federal corporate income tax that S-banks would pay if they were subject to the tax to show that the difference in the tax treatment of S-banks and other banks has a large impact on measures of United States banking system profitability. Further, the article shows that adjustment of S-bank earnings by estimates of federal income taxes to make them comparable with the earnings of other banks can markedly affect conclusions of studies that use net income as a measure of performance. Finally, the article shows that S-banks (even after their earnings are reduced by estimated federal taxes) tend to out-earn their peers. S-banks also tend to have higher earnings rates than their peers in the year before they elect S-bank status.

Citation

Gilbert, R. Alton, and Wheelock, David C. Measuring Commercial Bank Profitability: Proceed With Caution. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2007-11-08. https://doi.org/10.3886/ICPSR21301.v1

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Funding

Federal Reserve Bank of St. Louis. Research Division

Subject Terms

Geographic Coverage

Distributor(s)

Inter-university Consortium for Political and Social Research
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Data Collection Notes

  1. (1) A zipped package contains a SAS syntax file, version 9.1. (2) This syntax file is a part of ICPSR's Publication-Related Archive and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigators if further information is desired.

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Original Release Date

2007-11-08

Version History

2018-02-15 The citation of this study may have changed due to the new version control system that has been implemented. The previous citation was:

  • Gilbert, R. Alton, and David C. Wheelock. Measuring Commercial Bank Profitability: Proceed With Caution. ICPSR21301-v1. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2007-11-08. http://doi.org/10.3886/ICPSR21301.v1

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Notes

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