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The Influence of Income Diversification on Operating Stability of the Chinese Commercial Banking Industry

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  • Chunyang WANG

    (School of Business, Macau University of Science and Technology, China. Corresponding author.)

  • Yongjia LIN

    (School of Business, Macau University of Science and Technology, China.)

Abstract

This paper investigates the effects of diversified income structures on the risk of commercial banks in China. We selected 1111 samples of 101 different banks of China (including large and small banks) between 2006 and 2016. A two-step system Generalized Method of Moments is utilized, which does not need to know the exact distribution information of random error term to evaluate the diversified income of Chinese commercial banking industry’s effect on risk. The final results show that the operating stability of the banking industry in China will decrease when the share of non-interest income or diversification level increase. This is quite different from previous studies in which researchers thought that a diversified strategy could reduce banking risks. The references for the policy makers are provided from intermediary business and financial supervision.

Suggested Citation

  • Chunyang WANG & Yongjia LIN, 2018. "The Influence of Income Diversification on Operating Stability of the Chinese Commercial Banking Industry," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 29-41, September.
    • Handle: RePEc:rjr:romjef:v::y:2018:i:3:p:29-41
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    References listed on IDEAS

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    Cited by:

    1. Wang, Chunyang & Lin, Yongjia, 2021. "Income diversification and bank risk in Asia Pacific," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    income diversification; operating stability of bank; system generalized method of moments; non-interest income;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy

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