An analysis of country-by-country data for EU banks: an investigation of bank performance and risk

One of the biggest changes to financial reporting within the European Union over the last decade has been the growth of country-by-country (CbC) reporting. European legislation has required companies in certain sectors such as banking to publish information either about their performance or their payments to governments for each country where they operate. Our research explores the relevance of disclosures that have been mandated by the Capital Requirement Directive IV for the banking industry. We construct a composite performance indicator using a Benefit-of-the-Doubt model to explore how this information can be employed by stakeholders to evaluate the operational performance of European banks. Data for 39 of the 50 largest European banks over the period 2015–2019 are included in the study, with four major findings. Firstly, the results suggest that the risk of underperformance can be sizeable; there are a large number of low performing and a small number of high performing bank establishments. Secondly, both the bank-level gap (BLG) and the jurisdiction-level gap (JLG) are important sources of low performance. Thirdly, the path for improvement varies for different banks; while some need to enhance performance within specific jurisdictions compared to the other jurisdictions of the same bank, others must improve their performance relative to other banks. Finally, there is heterogeneity in the results at a country level, and the best performing establishments are often located in countries considered as tax-havens under certain taxonomies.