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Toward a More Resilient Financial System: Should Banks Be Diversified?

Author

Listed:
  • Laura Baselga-Pascual

    (Department of Finance and Accounting, University of Deusto, Mundaitz Kalea, 50, 20012 Donostia, Spain)

  • Olga Del Orden-Olasagasti

    (Department of Finance and Accounting, University of Deusto, Mundaitz Kalea, 50, 20012 Donostia, Spain)

  • Antonio Trujillo-Ponce

    (Department of Financial Economics and Accounting, Universidad Pablo de Olavide, Ctra. de Utrera km. 1, 41013 Seville, Spain)

Abstract

This article empirically analyzes the effects of revenue diversification on the profitability and risk of a large sample of Eurozone banks over the period from 2000 to 2012. We use the generalized method of moments (GMM) estimator, which is also referred to as the system-GMM estimator. We conclude that higher income diversification favors bank profitability. However, our study does not find a significant relationship between revenue diversification and bank risk, even when considering a crisis period. Our results suggest that establishing restrictions in the universal banking model could damage the resilience of the financial system, and thus affect the sustainability of the uneven economic recovery in Europe.

Suggested Citation

  • Laura Baselga-Pascual & Olga Del Orden-Olasagasti & Antonio Trujillo-Ponce, 2018. "Toward a More Resilient Financial System: Should Banks Be Diversified?," Sustainability, MDPI, Open Access Journal, vol. 10(6), pages 1-16, June.
  • Handle: RePEc:gam:jsusta:v:10:y:2018:i:6:p:1903-:d:151129
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