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| Author: | Demirgüc-Kunt, A. Huizinga, H. |
| Title: | Bank activity and funding strategies: The impact on risk and returns |
| Journal: | Journal of Financial Economics
2010 : DEC, VOL. 98:3 p. 626-650 |
| Index terms: | incomes diversification finance financial crises USA |
| Language: | eng |
| Abstract: | This paper explores 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, nevertheless, attract most of their short-term funding in the form of non-deposits at a cost of enhanced bank fragility. |
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