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Bank Trading, Capital, and Profitability

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  • Jijun Niu
  • Victor Y. Song

Abstract

Some banks generate significant income from trading activities. In this paper, we analyze a panel of US banks and find that the effect of trading on bank profitability depends on each bank’s capital ratio. Trading enhances profitability for banks with high capital ratios, but reduces profitability for banks with low capital ratios. Our findings provide empirical support for theories in which trading can divert capital away from relationship lending and undermine bank profitability.  JEL classification numbers: G21

Suggested Citation

  • Jijun Niu & Victor Y. Song, 2019. "Bank Trading, Capital, and Profitability," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(6), pages 1-14.
    • Handle: RePEc:spt:apfiba:v:9:y:2019:i:6:f:9_6_14
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bank; Trading; Capital; Profitability;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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