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A Long-Term Approach to Italian Banks’ Profitability: Paradise Lost?

The paper examines the long-term profitability of the Italian banking system (1965-2011), which has three interesting features: it has always been oriented to traditional intermediation; it underwent a significant process of privatization, consolidation and modernization; it proved to be very robust when the financial crisis burst. However at present, both Roa and Roe have reached the low levels of previous troughs. In a sense, the Italian banking system seems to be again at square one. Our analysis shows that the most important driver of profitability has been the decline of the margins since the late 1980s and that a reversal of this trend does not seem likely in the foreseeable future. Therefore, future rebounds of profitability can only come from significant actions of rationalization, which apparently have not been delivered in the past wave of mergers.