Abstract
This thesis assesses the riskiness of banks engaging in non-traditional activities, which are activities that generate non-interest income. Analyzing more than 40.000 observations from 130 countries over the years 1990 to 2014, no risk increasing is discovered of non-interest income. Non-interest income might even make banks more stable, but this effect is not found for every subsample and only slightly significant. In terms of performance during crises, no strong significant effects are found as well. This all suggests that non-interest income is not an important point of attention for bankers and policy makers in the discussion of risk-reduction in the banking sector.
3
1) Introduction ... 4
2) Literature review ... 6
2.1) Riskiness of Non-Traditional Activities ... 7
2.2) Hypotheses ... 9 3) Methodology ... 12 3.1) Control Variables ...13 3.2) Data ...15 4) Descriptive Data ... 17 5) Results ... 20 6) Robustness Checks ... 28 7) Conclusion ... 33 Bibliography ... 35
σ
Z-score
t=
𝑅𝑂𝐴𝑡+𝐸𝑡𝐴𝑡 𝜎(𝑅𝑂𝐴)𝑡Classification Variable Notation Calculation
Data Source
Bank Risk Z-score Z
ROA plus Total Equity over Total Assets, divided by the standard
deviation of ROA Bankscope Bank Performance
Log of Return
on Assets LN(ROA) Log of Return on Assets Bankscope
Measure of the Relative Volume of Non-Interest Income
Non-Interest
Income Ratio NIIR
Net Non-Interest Income over Net
Interest Income Bankscope Relative Volume of
Trading Income
Trading
Income Ratio TIR
Net Trading Income over Net
Interest Income Bankscope Relative Volume of
Commission Income
Commission
Income Ratio CIR
Net Commission Income over Net
Interest Income Bankscope Relative Volume of
Other Operating Income
Other Operating
Income Ratio OOIR
Net Other Operating Income over
Net Interest Income Bankscope Leverage
Liabilities to
Assets LtA Total Liabilities over Total Assets Bankscope Efficiency
Cost to
Income CtI
Operating Expenses over Operating
Income Bankscope Non-Deposit Funding
Non-Deposits
to Liabilities NDtL
One minus Total Deposits over
Liabilities Bankscope Asset Structure
Loans to
Assets LOtA Total Loans over Total Assets Bankscope
Bank Size
Log of Total
Assets LN(TA) Log of Total Assets Bankscope
15
Z-
i,t= α + β
1*NIIR
i,t+ β
2*[LN(TA)
i,t*NIIR
i,t] + β
3*LN(TA)
i,t+ β
4*LtA
i,t+ β
5*CtI
i,t+ β
6*NDtL
i,t+ β
7*LOtA
i,t+ β
8*LN(GDP)
i,t+ β
9*Bank-Specific
+ β
10*Time-Specific + ε
i,tLN(ROA)
i,t= α + β
1*NIIR
i,t+ β
2*[LN(TA)
i,t*NIIR
i,t] + β
3*LN(TA)
i,t+ β
4*LtA
i,t+ β
5*CtI
i,t+ β
6*NDtL
i,t+ β
7*LOtA
i,t+ β
8*LN(GDP)
i,t+ β
9*Bank-Specific
19 Trading Income Ratio Commission Income Ratio Other Operating Income Ratio
Trading Income Ratio 1.0000 0.0328 -0.0137
Commission Income Ratio 0.0328 1.0000 0.2391
Other Operating Income
