Activity Strategies, Agency Problems and Bank Risk
40 Pages Posted: 5 Sep 2018
Date Written: August 27, 2018
Our results show that US banks with a relatively high share of non-interest income become riskier with a moving toward non-interest-generating activities, especially activities from investment banking, proprietary trading, etc. The findings also prove, although weakly, that banks with a relatively low share of non-interest income enjoy the net gains from an increase of non-interest income activities. Interestingly, the data provides evidence of the bright side of diversification during crises. Our main findings are robust with a battery of robustness tests. The results are partially explained under agency frameworks related to poor corporate governance. Finally, the evidence has different implications for regulators, managers and investors.
Keywords: risk, diversification, noninterest income, banking, crises
JEL Classification: G21, G28, G34, G38
Suggested Citation: Suggested Citation