Classifying two banking cultures: The pragmatic structure of economic revelations

This paper focuses on one specific aspect of a larger project evaluating three measures of banking risk. It emphasizes the overarching question of comparative regulatory policy: Do the European Union and the United States constitute two distinct and separate banking cultures? To answer such a question, conventional econometrics often prescribes fixed effects regression. This paper pursues an alternative approach. It directly asks whether banks on those separate continents can be distinguished using exactly the same design matrix to evaluate the proposed risk measures. The successful completion of that classification task permits the bifurcation of the overall dataset into distinct subsets, one for each continent. Parameter estimates and fitted values produced by separate regressions supply far more reliable and accurate insights into the distinct business and regulatory cultures of European and American banking.