Does Uniqueness in Banking Matter?

50 Pages Posted: 8 Aug 2017 Last revised: 12 Jun 2018

(Frank) Hong Liu

University of Glasgow - Adam Smith Business School

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE)

Fabrizio Spargoli

Rotterdam School of Management

Date Written: June 11, 2018

Abstract

Banking activities differ in their uniqueness. Common activities are performed by most banks, unique activities by few banks. We investigate whether and how the uniqueness of banking activities affects the performance and systemic risk of U.S. banks. We find that banks performing more unique activities exhibit higher profitability and lower risk, controlling for size, diversification, and other key characteristics. We show that this positive performance impact of activity uniqueness is due to product differentiation but not productivity. We further find that banks’ sensitivity to systemic risk displays an inversely U-shaped relation with activity uniqueness. This result holds for different measures of systemic risk measures and in different model specifications. We interpret the impact of uniqueness in analogy to recent theories showing that systemic diversity promotes financial stability. Our study highlights the role of uniqueness in banking and has important implications for policy makers and banking regulators.

Keywords: Banks, Performance, Systemic Risk, Diversification, Diversity

JEL Classification: G20, G21

Suggested Citation

Liu, (Frank) Hong and Norden, Lars and Spargoli, Fabrizio, Does Uniqueness in Banking Matter? (June 11, 2018). Available at SSRN: https://ssrn.com/abstract=3014184 or http://dx.doi.org/10.2139/ssrn.3014184

(Frank) Hong Liu

University of Glasgow - Adam Smith Business School

Glasgow, Scotland
United Kingdom

Lars Norden (Contact Author)

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Rua Jornalista Orlando Dantas 30
Rio de Janeiro, 22231-010
Brazil
+552130832431 (Phone)

HOME PAGE: http://www.larsnorden.de

Fabrizio Spargoli

Rotterdam School of Management ( email )

Rotterdam
Netherlands

HOME PAGE: http://https://sites.google.com/site/fabriziospargolisresearchsite/

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