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How do noninterest income activities affect bank holding company performance?

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  • Mamun, Abdullah
  • Meier, Garrett
  • Wilson, Craig

Abstract

We investigate whether noninterest income activities affect bank performance measures, and we present evidence consistent with the theory that synergy between interest and noninterest income improves performance. A decomposition of ROA into cost and revenue ratios reveals that the improved performance associated with noninterest income arises mainly through revenue efficiency. We find consistent results using a risk-adjusted performance measure. Our results also show that noninterest income activities do not adversely affect BHC performance during the 2008 financial crisis, and in some cases, they even improve performance. Our findings help inform policymakers regarding regulations permitting bank participation in noninterest income activities.

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  • Mamun, Abdullah & Meier, Garrett & Wilson, Craig, 2023. "How do noninterest income activities affect bank holding company performance?," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612323000041
    DOI: 10.1016/j.frl.2023.103630
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    Cited by:

    1. Takahashi, Fábio Lucas & Vasconcelos, Marcos Roberto, 2024. "Bank efficiency and undesirable output: An analysis of non-performing loans in the Brazilian banking sector," Finance Research Letters, Elsevier, vol. 59(C).
    2. E Philip Davis & Dilruba Karim & Dennison Noel, 2024. "Noninterest Income, Macroprudential Policy and Bank Performance," National Institute of Economic and Social Research (NIESR) Discussion Papers 561, National Institute of Economic and Social Research.

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    More about this item

    Keywords

    Noninterest income activity; Bank performance; Financial crisis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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