3
Non-Interest Income of Commercial Banks:
Evidence from OECD Countries
This paper studies implications of the changing
revenue structure of
commercial banks in the era of financial conglomeration. Utilizing a dataset of
662 relatively large commercial banks in 29 OECD countries from 1992 to 2006,
we find that, in addition to bank specific factors such as asset size, equity-asset
ratio, and net interest margin, macroeconomic factors such as real GDP growth,
inflation, and stock market capitalization are important
determinants of bank
non-interest income shares. Second, banks with higher non-interest income ratios
exhibit not only higher average return on asset and equity-asset ratios, but also
higher variability in return
on assets, resulting in little impact on bank insolvency
risk. We also study macroeconomic implications of increasing homogeneity in
the revenue structure of banks within countries. We
find that countries with a
more homogeneous bank revenue structure tend to show higher inflation
volatility. Overall these findings suggest that expanding
toward non-interest
income may not produce desired income diversification effects at the bank level.
Furthermore, excessive convergence of revenue structure across banks may
potentially undermine macroeconomic stability.
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