Noninterest Income, Macroprudential Policy and Bank Performance

E Philip Davis (), Dilruba Karim () and Dennison Noel ()

No 561, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: Macroprudential policies have become crucial tools for maintaining financial stability, but their effect on banks' noninterest income has not yet been examined. This is a paradox in light of results in the literature linking noninterest income to bank performance indicators such as risk and profitability. Using a global sample of 7,368 banks over 1990-2022, we find macroprudential policies have a significant positive effect on noninterest income. Similar results are found for disaggregated samples by type of noninterest income, country development, bank size and pre and post the Global Financial Crisis, and in three robustness checks. However, the extent to which such positive effects feed through to overall profitability depends on the type of noninterest income. Furthermore, stimulus from macroprudential policies to noninterest income, and especially its nonfee component, is found to affect bank risk adversely. Our findings have important implications for central bankers, regulators and commercial bank management.

Keywords: Macroprudential policy; bank profitability; noninterest income; bank risk (search for similar items in EconPapers)
JEL-codes: E44 E58 G21 G28 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-ban and nep-cba
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