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Activity strategies, bank stability and policy uncertainty

Author

Listed:
  • Tien V. Nguyen

    (Banking Academy of Vietnam)

  • Anh Phan

    (Banking Academy of Vietnam)

  • Dung Viet Tran

    (Banking Academy of Vietnam)

Abstract

This study examines how activity strategies can affect bank stability in times of uncertainty, given the potential benefits and costs of having different lines of business. Our results show consistent evidence that expansion into non-interest income-generating activities may lead banks to become riskier. However, this negative effect is mitigated during times of increased uncertainty, especially for banks with strategies that rely prominently on generating non-interest income. This evidence survives with alternative samples, econometric methods, and measurements of variables. These findings remain robust across samples using alternative measures and empirical models. Further tests reveal that the moderating effect sustains itself across the distribution of banking risk. The evidence suggests a call for an optimal combination of banking activities in the future.

Suggested Citation

  • Tien V. Nguyen & Anh Phan & Dung Viet Tran, 2023. "Activity strategies, bank stability and policy uncertainty," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(4), pages 959-983, December.
  • Handle: RePEc:spr:jecfin:v:47:y:2023:i:4:d:10.1007_s12197-023-09640-z
    DOI: 10.1007/s12197-023-09640-z
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    More about this item

    Keywords

    Policy uncertainty; Diversification; Non-interest income; Risk; Banking;
    All these keywords.

    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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