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The US banking system has just emerged from a troublesome period with many institutions struggling for survival. We examine large commercial banks during the latter part of the 1980s to determine what factors affected bank profitability, using both cross-section and pooled time-series cross-section regressions. Our conclusions are that large banks experienced poor performance because of a declining quality of the loan portfolio. Real estate loans generally have a negative effect on large bank profitability, although not at high levels of significance; construction and land development loans, the exception, have a strong positive effect.
Miller et al. (Tue,) studied this question.