Finance and Financial Management Commons^™

Bank Risk And Return: The Impact Of Bank Non-Interest Income, Barry Williams, Laurie Prather

Barry Williams

Purpose – The purpose of this paper is to consider the impact on bank risk of portfolio diversification between traditional margin income and fee-based income for banks operating in Australia.Design/methodology/approach – Considering several performance variables, this analysis compares the benefits of diversification across different bank types relative to margin income and fee income. Further, regression analysis considers bank risk and revenue concentration.Findings – This paper documents that fee-based income is riskier than margin income but offers diversification benefits to bank shareholders. While improving bank risk-return trade-off, these benefits are of second order importance compared to the large negative impact of …