Banks' Non-Interest Income and Systemic Risk
33 Pages Posted: 14 Feb 2019
Date Written: January 31, 2019
This paper finds non-interest income to be positively correlated with total systemic risk for a large sample of U.S. banks. Decomposing total systemic risk into three components, we find that non-interest income has a positive relationship with a bank’s tail risk, a positive relationship with a bank’s interconnectedness risk, and an insignificant or positive relationship with a bank’s exposure to macroeconomic and finance factors. These results are generally robust to endogenizing for non-interest income and for trading and other non-interest income activities.
Keywords: Systemic Risk, Banks, Non-Interest Income, Risk-Spillover, Capital Requirements
JEL Classification: G01, G10, G18, G20, G28, G32, G38
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