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The Long-term Role of Non-traditional Banking in Profitability and risk profiles: Evidence from a panel of U.S. banking institutions

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Apergis, Nicholas
Date
2014
Type
Journal Article

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Apergis, Nicholas. 2014. The Long-term Role of Non-traditional Banking in Profitability and risk profiles: Evidence from a panel of U.S. banking institutions. Journal of International Money and Finance. 45: pp. 61-73.
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Journal of International Money and Finance
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NOTICE: this is the author’s version of a work that was accepted for publication in Journal of International Money and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Money and Finance, Vol. 45 (2014). DOI: 10.1016/j.jimonfin.2014.03.003

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Abstract

The goal of this empirical study is to identify empirically and on a panel basis how non-traditional bank activities affect directly the profitability and risk profiles of the financial institutions involved in such activities. Through a dataset that covers 1,725 U.S. financial institutions involved in non-traditional bank activities spanning the period 2000-2013 and the methodology of panel cointegration, the empirical findings document that non-traditional bank activities exert a positive effect on both the profitability and the insolvency risk. The results could be important for regulators given they could serve as a pre-warning signal that sends a clear message to regulators about the potential systemic risk that exists within the financial markets.