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Discerning the impact of disaggregated non-interest income activities on bank risk and profits in the post-Gramm-Leach-Bliley Act era

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  • Ghosh, Amit

Abstract

In the aftermath of the global financial crisis, many analysts have pointed towards the Gramm-Leach-Bliley Act and the associated regulatory changes in the banking industry as one of the key reasons for the financial meltdown in the US. Using an extensive dataset of all 5491 US commercial banks that were operational from June 2001 to March 2016, we examine the impact of aggregate non-interest income and its eleven disaggregated categories on bank-specific risks and profits. We find unequivocal evidence that both aggregate non-interest income and its different constituent categories increase bank risks, which is more pronounced in the post-crisis period. The results for bank profits are more mixed. The results call for a need to improve regulation and supervision of various disaggregated non-interest income activities such that the costs of engaging in these activities do not exceed their benefits for banks.

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  • Ghosh, Amit, 2020. "Discerning the impact of disaggregated non-interest income activities on bank risk and profits in the post-Gramm-Leach-Bliley Act era," Journal of Economics and Business, Elsevier, vol. 108(C).
    • Handle: RePEc:eee:jebusi:v:108:y:2020:i:c:s0148619519300980
    DOI: 10.1016/j.jeconbus.2019.105874
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    2. Navneet Kaur & Parneet Kaur, 2020. "Ownership structure, size, and interest income substitution by banks: An exploratory study in the Indian context," Australian Economic Papers, Wiley Blackwell, vol. 59(3), pages 279-301, September.

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    More about this item

    Keywords

    Financial services modernization act; Non-interest income categories; z-Score; Return on assets; Fixed effects; Balance sheet;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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