Diversification in banking: is noninterest income the answer?

No 154, Staff Reports from Federal Reserve Bank of New York

Abstract: The U.S. banking industry is steadily increasing its reliance on nontraditional business activities that generate fee income, trading revenue, and other types of noninterest income. This paper assesses potential diversification benefits from this shift. At the aggregate level, declining volatility of net operating revenue reflects reduced volatility of net interest income, rather than diversification benefits from noninterest income, which is quite volatile and has become more correlated with net interest income. At the bank level, growth rates of net interest income and noninterest income have also become more correlated in recent years. Finally, greater reliance on noninterest income, particularly trading revenue, is associated with higher risk and lower risk-adjusted profits. These results suggest little obvious diversification benefit from the ongoing shift toward noninterest income.

Keywords: Interest; Banks and banking - Service charges; Bank profits; Risk; Banks and banking (search for similar items in EconPapers)
Date: 2002
New Economics Papers: this item is included in nep-cba and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr154.html (text/html)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr154.pdf (application/pdf)

Related works:
Journal Article: Diversification in Banking: Is Noninterest Income the Answer? (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:154

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().