Citation

Discussion Paper Details

Please find the details for DP7170 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Bank Activity and Funding Strategies: The Impact on Risk and Return

Author(s): Asli Demirguc-Kunt and Harry Huizinga

Publication Date: February 2009

Keyword(s): bank fragility, financial crisis, non-interest income share, universal banking and wholesale funding

Programme Area(s): Financial Economics

Abstract: This paper examines the implications of bank activity and short-term funding strategies for bank risk and return using an international sample of 1334 banks in 101 countries leading up to the 2007 financial crisis. Expansion into non-interest income generating activities such as trading increases the rate of return on assets, and it may offer some risk diversification benefits at very low levels. Non-deposit, wholesale funding in contrast lowers the rate of return on assets, while it can offer some risk reduction at commonly observed low levels of non-deposit funding. A sizeable proportion of banks, however, attract most of their short-term funding in the form of non-deposits at a cost of enhanced bank fragility. Overall, banking strategies that rely prominently on generating non-interest income or attracting non-deposit funding are very risky, consistent with the demise of the U.S. investment banking sector.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7170

Bibliographic Reference

Demirguc-Kunt, A and Huizinga, H. 2009. 'Bank Activity and Funding Strategies: The Impact on Risk and Return'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7170