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Banks’ Non-Interest Income and Systemic Risk (Brunnermeier M.K., Dong G.N., Palia D.)

Bank Efficiency Contagion in Banking Investment Banking Regulation

Abstract This paper documents that banks with higher non-interest income (noncore activities like investment banking, venture capital and trading activities) have a higher contribution to systemic risk than traditional banking (deposit taking and lending). After decomposing total non-interest income into two components, trading income and investment banking and venture capital income, we find that both components are roughly equally related to systemic risk. These results are robust to endogeneity concerns when we use a difference-in-difference approach with the Lehman bankruptcy proxying for an exogenous shock. We also find that banks with higher trading income one-year prior to the recession earned lower returns during the recession period. No such significant effect was found for investment banking and venture capital income.
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Libref/ Brunnermeier M.K., Dong G.N., Palia D. (2012) "Banks’ Non-Interest Income and Systemic Risk", AFA 2012 Chicago Meetings Paper
© Программирование — Александр Красильников, 2008
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