Diversification in banking: is noninterest income the answer?
AbstractThe U.S. banking industry is steadily increasing its reliance on nontraditional business activities that generate fee income, trading revenue, and other types of noninterest income. This paper assesses potential diversification benefits from this shift. At the aggregate level, declining volatility of net operating revenue reflects reduced volatility of net interest income, rather than diversification benefits from noninterest income, which is quite volatile and has become more correlated with net interest income. At the bank level, growth rates of net interest income and noninterest income have also become more correlated in recent years. Finally, greater reliance on noninterest income, particularly trading revenue, is associated with higher risk and lower risk-adjusted profits. These results suggest little obvious diversification benefit from the ongoing shift toward noninterest income.
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Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Staff Reports with number 154.
Date of creation: 2002
Date of revision:
Other versions of this item:
- Stiroh, Kevin J, 2004. "Diversification in Banking: Is Noninterest Income the Answer?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 853-82, October.
- NEP-ALL-2002-11-04 (All new papers)
- NEP-CBA-2002-11-04 (Central Banking)
- NEP-RMG-2002-11-04 (Risk Management)
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CEPR Discussion Papers
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- "Making Sense of Obamaâs Bank Reform Plans"
by Mark Thoma in Economist's View on 2010-01-24 20:31:00
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