Abstract

This paper assesses potential diversification benefits in the U.S. banking industry from the steady shift toward activities that generate fee income, trading revenue, and other types of noninterest income. In the aggregate, declining volatility of net operating revenue reflects reduced volatility of net interest income, not diversification benefits from noninterest income, which is quite volatile and increasingly correlated with net interest income. At the bank level, greater reliance on noninterest income, particularly trading revenue, is associated with lower risk-adjusted profits and higher risk. This suggests few obvious diversification benefits from the ongoing shift toward noninterest income.

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Additional Information

ISSN
1538-4616
Print ISSN
0022-2879
Pages
pp. 853-882
Launched on MUSE
2004-10-01
Open Access
No
Archive Status
Archived 2007
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