Advanced Search
MyIDEAS: Login

Non-interest income and total income stability

Contents:

Author Info

  • Rosie Smith
  • Christos Staikouras
  • Geoffrey Wood
Registered author(s):

    Abstract

    Banks can differ markedly in their sources of income. Some focus on business lending, some on household lending, and some on fee-earning activities. Increasingly, however, most banks are diversifying into fee-earning activities. Such diversification is either justified (by the bank) or welcomed (by commentators), or both, as reducing the bank's exposure to risk. Diversification across various sources of earnings is welcomed for, it is claimed, diversification reduces risk. Whether it does of course depends on how independent of each other the various earnings sources are. Traditionally fee income has been very stable; but, also traditionally, it has been a small part of the earnings stream of most banks. Has non-interest income remained stable, or at least uncorrelated with interest income, as banks have increased its importance in their earnings? This paper examines the variability of interest and non-interest income, and their correlation, for the banking systems of EU countries for the years 1994-98. It is found that the increased importance of non-interest income did, for most but not all categories of bank, stabilise profits in the European banking industry in those years. It is not, however, invariably more stable than interest income.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2003/wp198.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Bank of England in its series Bank of England working papers with number 198.

    as in new window
    Length:
    Date of creation: Aug 2003
    Date of revision:
    Handle: RePEc:boe:boeewp:198

    Contact details of provider:
    Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
    Phone: +44 (0)171 601 4030
    Fax: +44 (0)171 601 5196
    Email:
    Web page: http://www.bankofengland.co.uk/
    More information through EDIRC

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. 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.
    2. Mester, Loretta J., 1992. "Traditional and nontraditional banking: An information-theoretic approach," Journal of Banking & Finance, Elsevier, vol. 16(3), pages 545-566, June.
    3. John H. Boyd & Stanley L. Graham, 1986. "Risk, regulation, and bank holding company expansion into nonbanking," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-17.
    4. Rebecca S. Demsetz & Philip E. Strahan, 1995. "Diversification, size, and risk at bank holding companies," Research Paper 9506, Federal Reserve Bank of New York.
    5. George G. Kaufman & Larry R. Mote, 1994. "Is banking a declining industry? A historical perspective," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 2-21.
    6. Robert DeYoung & Karin P. Roland, 1999. "Product mix and earnings volatility at commercial banks: evidence from a degree of leverage model," Working Paper Series WP-99-6, Federal Reserve Bank of Chicago.
    7. Eisenbeis, Robert A & Harris, Robert S & Lakonishok, Josef, 1984. " Benefits of Bank Diversification: The Evidence from Shareholder Returns," Journal of Finance, American Finance Association, vol. 39(3), pages 881-92, July.
    8. Simon Kwan, 1998. "Securities activities by commercial banking firms' Section 20 subsidiaries: risk, return and diversification benefits," Working Papers in Applied Economic Theory 98-10, Federal Reserve Bank of San Francisco.
    9. Heidi Taylor Aggeler & Ron Feldman, 1998. "Record bank profitability: how, who and what does it mean?," Fedgazette, Federal Reserve Bank of Minneapolis, issue Apr.
    10. Rodney N. Johnson & David R. Meinster, 1974. "Bank Holding Companies: Diversification Opportunities in Nonbank Activities," Eastern Economic Journal, Eastern Economic Association, vol. 1(4), pages 316-323, October.
    11. Larry D. Wall & Alan K. Reichert & Sunil Mohanty, 1993. "Deregulation and the opportunities for commercial bank diversification," Economic Review, Federal Reserve Bank of Atlanta, issue Sep, pages 1-25.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Li, Li & Zhang, Yu, 2013. "Are there diversification benefits of increasing noninterest income in the Chinese banking industry?," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 151-165.
    2. Goddard, John & Molyneux, Philip & Wilson, John O.S. & Tavakoli, Manouche, 2007. "European banking: An overview," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1911-1935, July.
    3. Vincenzo Chiorazzo & Carlo Milani & Francesca Salvini, 2008. "Income Diversification and Bank Performance: Evidence from Italian Banks," Journal of Financial Services Research, Springer, vol. 33(3), pages 181-203, June.
    4. Goddard, John & McKillop, Donal & Wilson, John O.S., 2008. "The diversification and financial performance of US credit unions," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1836-1849, September.
    5. Lepetit, Laetitia & Nys, Emmanuelle & Rous, Philippe & Tarazi, Amine, 2008. "Bank income structure and risk: An empirical analysis of European banks," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1452-1467, August.
    6. Abdelaziz HAKIMI & Helmi HAMDI & Mouldi DJELASSI, 2012. "Modelling Non-Interest Income at Tunisian Banks," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(1), pages 88-99, March.
    7. Nguyen, James, 2012. "The relationship between net interest margin and noninterest income using a system estimation approach," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2429-2437.
    8. Lepetit, Laetitia & Nys, Emmanuelle & Rous, Philippe & Tarazi, Amine, 2008. "The expansion of services in European banking: Implications for loan pricing and interest margins," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2325-2335, November.
    9. Barry Williams & Laurie Prather, 2010. "Bank risk and return: the impact of bank non-interest income," International Journal of Managerial Finance, Emerald Group Publishing, vol. 6(3), pages 220-244, July.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:198. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Publications Team).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.