Bank Trading, Capital, and Profitability

Jijun Niu and Victor Y. Song

Journal of Applied Finance & Banking, 2019, vol. 9, issue 6, 14

Abstract: Some banks generate significant income from trading activities. In this paper, we analyze a panel of US banks and find that the effect of trading on bank profitability depends on each bank’s capital ratio. Trading enhances profitability for banks with high capital ratios, but reduces profitability for banks with low capital ratios. Our findings provide empirical support for theories in which trading can divert capital away from relationship lending and undermine bank profitability.  JEL classification numbers: G21

Keywords: Bank; Trading; Capital; Profitability (search for similar items in EconPapers)
Date: 2019
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