The Impact of Non Interest Income on Bank Risk in Australia

The Impact of Non Interest Income on Bank Risk in Australia
Author: Barry Williams
Publisher:
Total Pages: 40
Release: 2014
Genre:
ISBN:

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This paper considers the relationship between bank revenue composition and bank risk in Australia, using data drawn from Australian bank confidential regulatory returns. It is found that those banks with lower levels of non interest income and higher revenue concentration are less risky, consistent with previous international evidence. Decreasing returns to scale in bank risk is found, with some evidence supportive of too big to fail effects. Non interest income is found to be risk increasing, but it is proposed that some types of non interest income may be risk reducing when bank specialisation effects are considered. It is concluded that care must be taken when selecting the appropriate peers for benchmarking, to reflect difference in income composition.

Universal Banking in the United States

Universal Banking in the United States
Author: Anthony Saunders
Publisher: Oxford University Press
Total Pages: 287
Release: 1994-01-06
Genre: Business & Economics
ISBN: 0195359763

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In 1933 and 1956, the United States sharply limited the kinds of securities activities, commercial activities, and insurance activities banks could engage in. The regulations imposed on banks back then remain in place despite profound changes in the economic environment, in the structure of the national and international financial markets, and in technology. In this span of time many industries, especially those confronting global competition, have transformed themselves dramatically in their efforts to survive and prosper. Not so in the American financial services sector, banks have largely remained stuck in an antiquated regulatory structure which has placed the burden of responding to the needs of market-driven structural change on the shoulders of the regulators and the courts in a constant search for loopholes in the law. The purpose of this book is to evaluate the case for and against eliminating the barriers that have so long existed between banking and other types of financial services in the United States. Universal Banking in the United States studies the consequences of bank regulation in the U.S. as it relates to competition in international financial markets. Anthony Saunders and Ingo Walter examine universal banking systems in other countries, especially Germany, Switzerland, and the U.K., and how they work. They then apply the lessons to U.S. banking, paying particular attention to the benchmarks of stability, equity, efficiency, and competitiveness against which the performance of national financial systems should be measured. In the end, the authors propose the outlines of a level playing field on which any number of forms of organization can grow in the financial services sector, in which universal banking is one of the permitted structures, and where regulation is linked to function.

Does Non-Interest Income Make Banks More Risky? Retail- Versus Investment-Oriented Banks

Does Non-Interest Income Make Banks More Risky? Retail- Versus Investment-Oriented Banks
Author: Matthias Köhler
Publisher:
Total Pages: 44
Release: 2016
Genre:
ISBN:

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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.

Australian Specific Bank Features and the Impact of Income Diversification on Bank Performance and Risk

Australian Specific Bank Features and the Impact of Income Diversification on Bank Performance and Risk
Author: Piyadasa Edirisuriya
Publisher:
Total Pages: 45
Release: 2014
Genre:
ISBN:

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As an outcome of financial deregulation, commercial banks have significantly diversified from a domestic dependence on simple interest-bearing loans to a broader range of financial services across international markets. Such initiatives have transformed the structure of the Australian banking industry and are destined to receive scrutiny following the announcement of Australia's financial services inquiry. Against the view that attempts by firms to diversify can be expected to impact negatively on financial performance, we find no evidence to suggest that diversification has been detrimental to the performance of Australian banks. It appears, rather, that Australia's banks have improved their risk-return revenue streams as an outcome of diversification. We confirm our findings with both accounting and market measures of performance.

Global Financial Development Report 2019/2020

Global Financial Development Report 2019/2020
Author: World Bank
Publisher: World Bank Publications
Total Pages: 281
Release: 2019-11-22
Genre: Business & Economics
ISBN: 1464814961

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Over a decade has passed since the collapse of the U.S. investment bank, Lehman Brothers, marked the onset of the largest global economic crisis since the Great Depression. The crisis revealed major shortcomings in market discipline, regulation and supervision, and reopened important policy debates on financial regulation. Since the onset of the crisis, emphasis has been placed on better regulation of banking systems and on enhancing the tools available to supervisory agencies to oversee banks and intervene speedily in case of distress. Drawing on ten years of data and analysis, Global Financial Development Report 2019/2020 provides evidence on the regulatory remedies adopted to prevent future financial troubles, and sheds light on important policy concerns. To what extent are regulatory reforms designed with high-income countries in mind appropriate for developing countries? What has been the impact of reforms on market discipline and bank capital? How should countries balance the political and social demands for a safety net for users of the financial system with potentially severe moral hazard consequences? Are higher capital requirements damaging to the flow of credit? How should capital regulation be designed to improve stability and access? The report provides a synthesis of what we know, as well as areas where more evidence is still needed. Global Financial Development Report 2019/2020 is the fifth in a World Bank series. The accompanying website tracks financial systems in more than 200 economies before, during, and after the global financial crisis (http://www.worldbank.org/en/publication/gfdr) and provides information on how banking systems are regulated and supervised around the world (http://www.worldbank.org/en/research/brief/BRSS).

The Australian Banking Sector

The Australian Banking Sector
Author: George Triantos
Publisher:
Total Pages: 654
Release: 2006
Genre: Bank mergers
ISBN:

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The identified positive impact of mergers on the industry efficiency levels may suggest that further industry rationalisation should be allowed, in order for banks to remain competitive and to strive to better meet their customers' needs. In fact the SFA analysis suggested that a statistically significant relationship existed between bank efficiency and bank size based on non-interest income output. However, we note that in most outcomes across both techniques and modelling approaches, there was no relationship between bank efficiency levels, bank size and market power. The Wallis Committee handed down their recommendations in 1997, seeking to improve banking efficiency and to reshape the regulatory environment. The analysis found that, although there is evidence of a general upward trend in efficiency scores over the sample period, the Wallis Report did not itself have a measurable effect upon the post-Wallis bank efficiency scores, as the Wallis Report did not differentially impact on bank resource usage or expense utilisation, or the ability of banks to generate loans relative to other income sources. This suggests that the Wallis Report did not sufficiently focus on operational attributes linked to efficiency achievement, or possibly that additional time is required for the implications of the Wallis Report initiatives and recommendations to take effect or that banks are closing in on maximum achievable efficiency levels in light of the current operating and regulatory environment.

Breaking the Bank? A Probabilistic Assessment of Euro Area Bank Profitability

Breaking the Bank? A Probabilistic Assessment of Euro Area Bank Profitability
Author: Selim Elekdag
Publisher: International Monetary Fund
Total Pages: 38
Release: 2019-11-22
Genre: Business & Economics
ISBN: 1513516140

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This paper explores the determinants of profitability across large euro area banks using a novel approach based on conditional profitability distributions. Real GDP growth and the NPL ratio are shown to be the most reliable determinants of bank profitability. However, the estimated conditional distributions reveal that, while higher growth would raise profits on average, a large swath of banks would most likely continue to struggle even amid a strong economic recovery. Therefore, for some banks, a determined reduction in NPLs combined with cost efficiency improvements and customized changes to their business models appears to be the most promising strategy for durably raising profitability.

Bank Size and Systemic Risk

Bank Size and Systemic Risk
Author: Mr.Luc Laeven
Publisher: International Monetary Fund
Total Pages: 34
Release: 2014-05-08
Genre: Business & Economics
ISBN: 1484363728

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The proposed SDN documents the evolution of bank size and activities over the past 20 years. It discusses whether this evolution can be explained by economies of scale or “too big to fail” subsidies. The paper then presents evidence on the extent to which bank size and market-based activities contribute to systemic risk. The paper concludes with policy messages in the area of capital regulation and activity restrictions to reduce the systemic risk posed by large banks. The analysis of the paper complements earlier Fund work, including SDN 13/04 and the recent GFSR chapter on “too big to fail” subsidies, and its policy message is in line with this earlier work.

Pushed Past the Limit? How Japanese Banks Reacted to Negative Interest Rates

Pushed Past the Limit? How Japanese Banks Reacted to Negative Interest Rates
Author: Mr.Gee Hee Hong
Publisher: International Monetary Fund
Total Pages: 50
Release: 2018-06-13
Genre: Business & Economics
ISBN: 148436161X

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In this paper, we investigate how negative interest rate policy (NIRP) introduced in January 2016 by the Bank of Japan (BoJ) affected Japanese banks' lending and risk taking behavior. The BoJ's announcement was an unexpected surprise to the market and was followed by a sharp drop in equity prices of Japanese financial firms. We exploit the cross-sectional variation in the change of share prices on the day of the announcement to measure banks' differential exposure to NIRP. We show that more exposed banks increased their credit and took on more risk compared to banks that were less exposed to negative rates.