Bank Income Structure and Risk: An Empirical Analysis of European Banks

Posted: 11 Jan 2007 Last revised: 13 Mar 2014

See all articles by Amine Tarazi

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Emmanuelle Nys

Université de Limoges, LAPE

Philippe Rous

Université de Limoges, LAPE

Abstract

The purpose of this paper is to investigate the relationship between bank risk and product diversification in the changing structure of the European banking industry. Based on a broad set of European banks for the period 1996-2002, our study first shows that banks expanding into non-interest income activities present higher risk and higher insolvency risk than banks which mainly supply loans. However, considering size effects and splitting non-interest activities into both trading activities and commission and fee activities we show that the positive link with risk is mostly accurate for small banks and essentially driven by commission and fee activities. A higher share of trading activities is never associated with higher risk and for small banks it implies, in some cases, lower asset and default risks.

Keywords: bank risk, interest income, non-interest income, product diversification

JEL Classification: G21

Suggested Citation

Tarazi, Amine and Lepetit, Laetitia and Nys, Emmanuelle and Rous, Philippe, Bank Income Structure and Risk: An Empirical Analysis of European Banks. Journal of Banking and Finance, 2008, 32 (8), 1452-1467. Available at SSRN: https://ssrn.com/abstract=955848

Amine Tarazi (Contact Author)

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Felix Eboue
BP 3127
Limoges Cedex 1, 87031
France
+33555149213 (Phone)

HOME PAGE: http://www.unilim.fr/lape/

Emmanuelle Nys

Université de Limoges, LAPE ( email )

5 rue Félix Eboué
BP 3127
Limoges Cedex 1, 87031
France

Philippe Rous

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

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