Bank income structure and risk: An empirical analysis of European banks

Laetitia Lepetit, Emmanuelle Nys, Philippe Rous () and Amine Tarazi
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Philippe Rous: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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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. JEL classification: G21

Keywords: bank risk; interest income; non-interest income; product diversification (search for similar items in EconPapers)
Date: 2008
Note: View the original document on HAL open archive server: https://hal.science/hal-01098960v1
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Citations: View citations in EconPapers (324)

Published in Journal of Banking and Finance, 2008, 32, pp.1452 - 1467. ⟨10.1016/j.jbankfin.2007.12.002⟩

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Journal Article: Bank income structure and risk: An empirical analysis of European banks (2008)
Working Paper: Bank income structure and risk: An empirical analysis of European banks (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01098960

DOI: 10.1016/j.jbankfin.2007.12.002

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