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The determinants of interest margins and their effect on bank diversification: Evidence from Asian banks

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  • Lin, Jane-Raung
  • Chung, Huimin
  • Hsieh, Ming-Hsiang
  • Wu, Soushan
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    Abstract

    An endogenous switching regression model is employed for this study, categorizing the banks into regimes of high and low degrees of diversification, with our results indicating that net interest margins can be less sensitive to fluctuations in bank risk factors for functionally diversified banks as compared to more specialized banks. In turn, this implies that by diversifying their income sources, these banks can reduce the shocks to net interest margins arising from idiosyncratic risk. Our results show that prior findings can hold when the banks are located in a regime with a low degree of diversification.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Stability.

    Volume (Year): 8 (2012)
    Issue (Month): 2 ()
    Pages: 96-106

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    Handle: RePEc:eee:finsta:v:8:y:2012:i:2:p:96-106

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    Web page: http://www.elsevier.com/locate/jfstabil

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    Keywords: Bank diversification; Interest margins; Endogenous switching model;

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    References

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    Cited by:
    1. Irwan Trinugroho & Agusman Agusman & Amine Tarazi, 2012. "Why Have Bank Interest Margins Been so High in Indonesia Since the 1997/1998 Financial Crisis?," Working Papers hal-00916531, HAL.
    2. Lee, Chien-Chiang & Hsieh, Meng-Fen & Yang, Shih-Jui, 2014. "The relationship between revenue diversification and bank performance: Do financial structures and financial reforms matter?," Japan and the World Economy, Elsevier, vol. 29(C), pages 18-35.

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