Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73655
Authors: 
Köhler, Matthias
Year of Publication: 
2013
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 17/2013
Abstract: 
In this paper, we analyze the impact of banks' non-interest income share on risk in the German banking sector for the period between 2002 and 2010. Using linear and quantile regression estimators, we find that the impact of non-interest income on risk significantly differs depending on banks' overall business model. More specifically, we show banks with retail-oriented business model such as savings banks, cooperative banks and other retail-oriented banks become significantly more stable if they increase their share of non-interest income. Investment-oriented banks, in contrast, become significantly more risky. They do not only report a significantly higher share of non-interest income, but also differ in terms of their activities from retail-oriented banks. Overall, this indicates that retail-oriented banks should increase their share of non-interest income to become more stable. Investment-oriented banks, in contrast, should decrease it. Our results imply that banks are significantly less risky if they have a more balanced income structure and neither depend heavily on interest nor on non-interest income. Furthermore, they indicate that the impact of non-interest income on risk significantly depends on the activities used to generate non-interest income with retail-oriented activities being significantly less risky than investment-oriented activities such as those pertaining to capital markets activities.
Subjects: 
banks
risk-taking
business model
non-interest income
diversification
JEL: 
G20
G21
G28
ISBN: 
978-3-86558-916-3
Document Type: 
Working Paper

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