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Mitigating or magnifying systemic risk? The role of non-interest income during market disruptions

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  • Wasi, Md Abdul
  • Zurbruegg, Ralf

Abstract

We examine how non-interest income affects U.S. banks' systemic risk during financial disruptions. Using quarterly data from 2010–2023 and marginal expected shortfall as our risk measure, we find that non-interest income reduces systemic risk during the market-wide liquidity crisis caused by the COVID-19 pandemic, but increases risk during the Russia-Ukraine conflict, a sector-specific disruption. Trading income, rather than fee-based income, drives these effects. Our findings suggest banks strategically employ non-interest activities for risk diversification during broad liquidity crises, with implications for calibrating regulatory oversight.

Suggested Citation

  • Wasi, Md Abdul & Zurbruegg, Ralf, 2025. "Mitigating or magnifying systemic risk? The role of non-interest income during market disruptions," Finance Research Letters, Elsevier, vol. 86(PE).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pe:s1544612325019919
    DOI: 10.1016/j.frl.2025.108737
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    References listed on IDEAS

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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