The impact of revenue diversification on profitability, capital, and risk in US banks by size

Ben Z. Schreiber

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

This study examines the influence of US banks’ revenue diversification on profitability, capital, and credit risk by size. By a simple decomposition of Return On Capital (ROC) I show how popular revenue diversification measures reflect both the ROC and risk-adjusted ROC. I find substantial differences between size groups concerning the impact of revenue diversification measures on: profitability, capital, and credit risk both in comparative statics and dynamically along the business cycles. Profitability, capital, and credit risk in medium size banks reflect insensitivity to these measures compared to other size groups; large and small alike. A similar ‘smile’ pattern has also been found regarding the respective pairwise conditional correlations between profitability, capital, and credit risk.

Original languageEnglish
Article number102000
JournalNorth American Journal of Economics and Finance
Volume69
DOIs
StatePublished - Jan 2024
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2023 Elsevier Inc.

Keywords

  • Banks
  • Business cycles
  • Capital
  • Equity
  • Profitability
  • Revenue Diversification
  • Risk

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