The Relative Riskiness of Various Asset Focus Alternatives in Banking

50 Pages Posted: 19 Aug 2009

See all articles by Mitch Stan

Mitch Stan

Canada Deposit Insurnace Corporation

Michael L. McIntyre

affiliation not provided to SSRN

Date Written: August 18, 2009

Abstract

This research examines whether the risk of focused banks is higher than that of diversified ones. Focused banks are defined as those with a large proportion of assets in one of six narrow industry segments including agricultural loans, credit cards, commercial lending, mortgage lending, consumer lending, and other focused loans.

This study takes a bank supervisor approach rather than adopting the perspective of a shareholder. It differs from similar work in the past because it compares focused banks to a sample including only diversified banks. Other studies, in contrast, compared one focused peer group to a comparator group of all banks but for the one focused group. Thus, the comparator group included both diversified and focused banks. The data in this study confirms the major hypothesis that banks following a diversified strategy are less risky than banks following an industry-focused approach. Interestingly, our study finds that, despite being more risky, the focused groups reported return-on-asset ratios below those of the diversified comparator groups in the majority of our comparisons.

Keywords: Banking, bank regulation, risk management

JEL Classification: G2

Suggested Citation

Stan, Mitch and McIntyre, Michael L., The Relative Riskiness of Various Asset Focus Alternatives in Banking (August 18, 2009). 22nd Australasian Finance and Banking Conference 2009, Available at SSRN: https://ssrn.com/abstract=1457359 or http://dx.doi.org/10.2139/ssrn.1457359

Mitch Stan

Canada Deposit Insurnace Corporation ( email )

50 O'Connor Street, 17th Floor
P.O. Box 2340, Station D
Ottawa, Ontario K1P 5W5
Canada

Michael L. McIntyre (Contact Author)

affiliation not provided to SSRN

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