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Non-Interest Income Activities and Bank Lending

Listed author(s):
  • Pejman Abedifar

    ()

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société)

  • Philip Molyneux

    ()

    (Business School - Bangor University, Bangor)

  • Amine Tarazi

    ()

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société)

This paper investigates the impact of non-interest income businesses on bank lending. Using quarterly data on 8,287 U.S. commercial banks over 2003-2010, we find that the non-interest income activities of banks with total assets above $100 million ('non-micro' banks) influence credit risk. In particular, banks that have higher income from fiduciary activities have lower credit risk. The impact is more pronounced during the post-crisis period. Our findings suggest that fiduciary activities induce managers to behave more prudently in lending because such activities are found to increase banks' franchise value. Other non-interest income activities that may be thought to have an influence on lending - such as service charges on deposit accounts - do not appear to have any robust relationship with the quality of credit extended. Moreover, we find little evidence of income or price cross- subsidization between traditional intermediation and non-interest income activities, except for fiduciary activities after the crisis. Furthermore, we find that micro banks suffer from diseconomies in joint production of non-interest income activities and lending.

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Paper provided by HAL in its series Working Papers with number hal-00947074.

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Date of creation: 26 Aug 2014
Handle: RePEc:hal:wpaper:hal-00947074
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