Bank Non-Interest Income: A Source of Stability?

Posted: 31 Oct 2000

See all articles by Christos Staikouras

Christos Staikouras

Athens University of Economics and Business - Department of Accounting and Finance

Geoffrey Wood

Cass Business School

Rosie Denney

City University London - Faculty of Finance

Date Written: February 2000

Abstract

In the face of declining net interest margins, depository institutions have entered new product areas over the past two decades, moving from traditional lending to areas that generate non-interest revenues. The change is of importance for financial stability. The more unstable is a bank's earnings stream, the more risky the institution is. The aim of this paper is to examine whether the gradual move into fee-earning activities has reduced the variability of banking system profits. The conventional wisdom in the banking industry is that earnings from fee-based products are more stable than loan-based earnings, and that fee-based activities reduce bank risk via diversification. Our results, generally, do not support that view. However, there is the potential for diversification benefits in the case of German commercial banks, the UK buildings societies, and small German banks, although this appears to be quite limited since in all cases fee income is less stable.

Keywords: European banking, non-interest income, profitability, stability

JEL Classification: G21

Suggested Citation

Staikouras, Christos and Wood, Geoffrey E. and Denney, Rosie, Bank Non-Interest Income: A Source of Stability? (February 2000). Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=233905

Christos Staikouras

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
Athens, 104 34
Greece
+30 210 8203 459 (Phone)

Geoffrey E. Wood (Contact Author)

Cass Business School ( email )

London, EC2Y 8HB
Great Britain
+44 0 20 7040 8740 (Phone)
+44 0 20 7040 8881 (Fax)

Rosie Denney

City University London - Faculty of Finance

London, EC2Y 8HB
Great Britain

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