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The impact of revenue diversification on profitability, capital, and risk in US banks by size

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  • Schreiber, Ben Z.

Abstract

This study examines the influence of US banks’ revenue diversification on profitability, capital, and credit risk by size. By a simple decomposition of Return On Capital (ROC) I show how popular revenue diversification measures reflect both the ROC and risk-adjusted ROC. I find substantial differences between size groups concerning the impact of revenue diversification measures on: profitability, capital, and credit risk both in comparative statics and dynamically along the business cycles. Profitability, capital, and credit risk in medium size banks reflect insensitivity to these measures compared to other size groups; large and small alike. A similar ‘smile’ pattern has also been found regarding the respective pairwise conditional correlations between profitability, capital, and credit risk.

Suggested Citation

  • Schreiber, Ben Z., 2024. "The impact of revenue diversification on profitability, capital, and risk in US banks by size," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:ecofin:v:69:y:2024:i:pa:s1062940823001237
    DOI: 10.1016/j.najef.2023.102000
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    More about this item

    Keywords

    Banks; Profitability; Capital; Equity; Risk; Revenue Diversification; Business cycles;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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