Non-Core Banking, Performance, and Risk
59 Pages Posted: 3 Oct 2014 Last revised: 9 Jan 2018
Date Written: January 10, 2018
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: Suggested Citation