How Income Diversification, Size and Capital Ratio Affect BHC’s Performance?

This paper investigates whether the range of activities conducted by banks influences their performance and risk. Using an unbalanced panel dataset which includes 308 bank-year observations, for the period 2006-2011, corresponding to 52 Italian Bank Holding Companies in the last year, the core question is to analyse the effect of diversification across and within both traditional and non-traditional income and if the results have been affected by the financial crisis. The main results suggest that revenue diversification plays a role in determining bank performance. The relative effects appear, however, to be different in relation to banks’ size and capital ratio. The results have strategic implications both for bank managers, regulators and supervisors for the consequences on banks’ performance and stability.