Non-Core Banking, Performance, and Risk

59 Pages Posted: 3 Oct 2014 Last revised: 9 Jan 2018

See all articles by Anthony Saunders

Anthony Saunders

New York University - Leonard N. Stern School of Business

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

Ingo Walter

New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance

Date Written: January 10, 2018

Abstract

One of the most dramatic trends in banking since 2000 has been the secular movement away from core banking and interest generating activities towards enhanced reliance on non-interest-generating activities that focus largely on fees and trading profits. This has changed the banking model from traditional asset formation, such as deposit taking and lending, towards a model built on fees and non-banking activities. In this paper, we draw on a dataset covering over 10,000 US banks and 542 bank holding companies and find no evidence that this shift in the bank business model harms bank profitability and / or increases failure rates, idiosyncratic risk, or systemic risk.

Keywords: Core-banking activity, Non-traditional income, Bank size, Financial crises, Systemic risk

JEL Classification: G01, G21

Suggested Citation

Saunders, Anthony and Schmid, Markus and Walter, Ingo, Non-Core Banking, Performance, and Risk (January 10, 2018). University of St.Gallen, School of Finance Research Paper No. 2014/17. Available at SSRN: https://ssrn.com/abstract=2504675 or http://dx.doi.org/10.2139/ssrn.2504675

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Markus Schmid (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Ingo Walter

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0707 (Phone)
212-995-4220 (Fax)

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

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