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Bank Diversification into the Insurance Business: The Effects of the Deregulation of the Bank-Sales Channel at Japanese Banks

Author

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  • KONISHI, Masaru
  • 小西, 大
  • OKUYAMA, Eiji
  • YASUDA, Yukihiro
  • 安田, 行宏

Abstract

In this paper we empirically examine the diversification effects of the deregulation of bank-sales channel into the insurance business by Japanese banks. Using the Japanese unique data set on fee-based revenues, we identify separate fee-based revenues, such as insurance and/or mutual fund sales. We find that banks with a higher BIS ratio, more branches, more monopolistic power in loan market, and higher loan-to-deposit ratios tend to have shifted towards an insurance fee-based business. This indicates that bank health and branch expansion can affect the fee business strategy at each bank. We also find that banks with lower mutual fund fee revenues tend to earn more insurance fee revenues, implying that a substitute relationship has developed between them after the Global Financial Crisis of 2007. We find that banks with higher insurance revenues are positively associated with return volatilities (such as ROA and/or ROE) but are not related with total risk or Z score. The results indicate that although increased fee-based activities can increase the volatility of bank earnings, they have only had a small impact on equity and/or insolvency risks at Japanese banks.

Suggested Citation

  • KONISHI, Masaru & 小西, 大 & OKUYAMA, Eiji & YASUDA, Yukihiro & 安田, 行宏, 2016. "Bank Diversification into the Insurance Business: The Effects of the Deregulation of the Bank-Sales Channel at Japanese Banks," Working Paper Series G-1-12, Hitotsubashi University Center for Financial Research.
  • Handle: RePEc:hit:hcfrwp:g-1-12
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    References listed on IDEAS

    as
    1. Stiroh, Kevin J, 2004. "Diversification in Banking: Is Noninterest Income the Answer?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 853-882, October.
    2. DeYoung, Robert & Roland, Karin P., 2001. "Product Mix and Earnings Volatility at Commercial Banks: Evidence from a Degree of Total Leverage Model," Journal of Financial Intermediation, Elsevier, vol. 10(1), pages 54-84, January.
    3. Kevin Stiroh, 2004. "Do Community Banks Benefit from Diversification?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 25(2), pages 135-160, April.
    4. Stiroh, Kevin J., 2006. "A Portfolio View of Banking with Interest and Noninterest Activities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1351-1361, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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