Diversification and Performance in Banking: The Israeli Case

42 Pages Posted: 1 Mar 2005

See all articles by Yoram Landskroner

Yoram Landskroner

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

David Ruthenberg

Bank of Israel

Date Written: February 2005

Abstract

This paper analyzes performance and portfolio choice of banks' investments across business units using methodologies developed mainly for equity investments. The backgrounds to the paper are major recent developments in the financial services industry, mainly consolidation in the banking industry that raised the issue of efficiency gains due to diversification. The paper focuses on banks in Israel as an extended case study, using the fact that Israeli banks have operated as (limited) universal banks for a long time. The results suggest that there are gains to diversification and that risk adjusted performance is mostly consistent with optimal portfolio choice.

Most of the previous research in this area has been done in the US. These studies necessarily focused on hypothetical combinations of different business activities because of the legal limits on US banks. Thus, this paper adds to the literature both by examining actual combinations and looking at another country.

Keywords: Bank risk adjusted performance, bank diversification

JEL Classification: G 11

Suggested Citation

Landskroner, Yoram and Ruthenberg, David, Diversification and Performance in Banking: The Israeli Case (February 2005). Available at SSRN: https://ssrn.com/abstract=675230 or http://dx.doi.org/10.2139/ssrn.675230

Yoram Landskroner (Contact Author)

Hebrew University of Jerusalem - Department of Finance and Banking ( email )

Mount Scopus
Jerusalem, 91905
Israel

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

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

David Ruthenberg

Bank of Israel ( email )

P.O. Box 780
Jerusalem 91007
Israel
+72 2 655 2464 (Phone)