Non-Interest Income and Bank Lending

45 Pages Posted: 15 Feb 2014 Last revised: 9 Oct 2017

See all articles by Pejman Abedifar

Pejman Abedifar

University of St Andrews - School of Management

Philip Molyneux

University of Sharjah - College of Business Administration

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: October 3, 2017

Abstract

This paper examines the influence of non-interest activities on bank lending in terms of loan quality and interest spread. We also investigate the possible existence of profit complementarities between non-interest activities and lending. Using quarterly data on 6,921 U.S. commercial banks between 2007:Q3 to 2016:Q3 we find that non-interest activities have no adverse influence on bank credit risk. This is the case for banks of different asset size (including systemically important banks) as well as for distressed banks. There is evidence that banks with assets between $100 million and $1 billion that have a greater share of fiduciary income have lower credit risk. They also have lower interest rates on loans secured by real estate, and higher franchise values, particularly post-crisis. Moreover, banks in the aforementioned size range benefit from synergies in joint production of non-interest income and lending, whereas other banks, in particular smaller banks (below $100 million in assets) suffer from diseconomies of joint production. Larger banks exhibit cross-subsidization between several non-interest activities and lending business.

Keywords: Non-interest Income, Fiduciary, Credit Risk, Spread, Profit Complementarities

JEL Classification: G21

Suggested Citation

Abedifar, Pejman and Molyneux, Philip and Tarazi, Amine, Non-Interest Income and Bank Lending (October 3, 2017). Available at SSRN: https://ssrn.com/abstract=2395799 or http://dx.doi.org/10.2139/ssrn.2395799

Pejman Abedifar (Contact Author)

University of St Andrews - School of Management ( email )

The Gateway, North Haugh
St Andrews, Fife KY16 9RJ
United Kingdom

Philip Molyneux

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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