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Diversification in Banking: Is Noninterest Income the Answer?

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  • Stiroh, Kevin J

Abstract

This paper assesses potential diversification benefits in the U.S. banking industry from the steady shift toward activities that generate fee income, trading revenue, and other types of noninterest income. In the aggregate, declining volatility of net operating revenue reflects reduced volatility of net interest income, not diversification benefits from noninterest income, which is quite volatile and increasingly correlated with net interest income. At the bank level, greater reliance on noninterest income, particularly trading revenue, is associated with lower risk-adjusted profits and higher risk. This suggests few obvious diversification benefits from the ongoing shift toward noninterest income.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 36 (2004)
Issue (Month): 5 (October)
Pages: 853-82

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Handle: RePEc:mcb:jmoncb:v:36:y:2004:i:5:p:853-82

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Saunders, Anthony & Walter, Ingo, 1994. "Universal Banking in the United States: What Could We Gain? What Could We Lose?," OUP Catalogue, Oxford University Press, number 9780195080698, September.
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  11. Donald Morgan & Kevin Stiroh, 2001. "Market Discipline of Banks: The Asset Test," Journal of Financial Services Research, Springer, vol. 20(2), pages 195-208, October.
  12. Boyd, John H. & Graham, Stanley L. & Hewitt, R. Shawn, 1993. "Bank holding company mergers with nonbank financial firms: Effects on the risk of failure," Journal of Banking & Finance, Elsevier, vol. 17(1), pages 43-63, February.
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  1. "Making Sense of Obama’s Bank Reform Plans"
    by Mark Thoma in Economist's View on 2010-01-24 20:31:00
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