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Toward a More Resilient Financial System: Should Banks Be Diversified?

Laura Baselga-Pascual (), Olga Del Orden-Olasagasti () and Antonio Trujillo-Ponce ()
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Laura Baselga-Pascual: Department of Finance and Accounting, University of Deusto, Mundaitz Kalea, 50, 20012 Donostia, Spain
Olga Del Orden-Olasagasti: Department of Finance and Accounting, University of Deusto, Mundaitz Kalea, 50, 20012 Donostia, Spain
Antonio Trujillo-Ponce: Department of Financial Economics and Accounting, Universidad Pablo de Olavide, Ctra. de Utrera km. 1, 41013 Seville, Spain

Sustainability, 2018, vol. 10, issue 6, 1-16

Abstract: This article empirically analyzes the effects of revenue diversification on the profitability and risk of a large sample of Eurozone banks over the period from 2000 to 2012. We use the generalized method of moments (GMM) estimator, which is also referred to as the system-GMM estimator. We conclude that higher income diversification favors bank profitability. However, our study does not find a significant relationship between revenue diversification and bank risk, even when considering a crisis period. Our results suggest that establishing restrictions in the universal banking model could damage the resilience of the financial system, and thus affect the sustainability of the uneven economic recovery in Europe.

Keywords: diversification; bank profitability; bank risk; dynamic panel; European banking system; sustainability of economic recovery (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2018
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