Bank Activity and Funding Strategies : The Impact on Risk and Returns

This paper examines the implications of bank activity and short-term funding strategies for bank risk and return using an international sample of 1,334 banks in 101 countries leading up to the 2008 financial crisis. Expansion into noninterest income-generating activities such as trading increases th...

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Main Authors:	Demirguc-Kunt, Asli, Huizinga, Harry
Format:	Journal Article
Language:	EN
Published:	2012
Subjects:	Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Investment Banking Venture Capital Brokerage Ratings and Ratings Agencies G240
Online Access:	http://hdl.handle.net/10986/5635

id	okr-10986-5635
recordtype	oai_dc
spelling	okr-10986-56352021-04-23T14:02:23Z Bank Activity and Funding Strategies : The Impact on Risk and Returns Demirguc-Kunt, Asli Huizinga, Harry Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Investment Banking Venture Capital Brokerage Ratings and Ratings Agencies G240 This paper examines the implications of bank activity and short-term funding strategies for bank risk and return using an international sample of 1,334 banks in 101 countries leading up to the 2008 financial crisis. Expansion into noninterest income-generating activities such as trading increases the rate of return on assets, and it could offer some risk diversification benefits at very low levels. Nondeposit, wholesale funding in contrast lowers the rate of return on assets, while it can offer some risk reduction at commonly observed low levels of nondeposit funding. A sizable proportion of banks, however, attract most of their short-term funding in the form of nondeposits at a cost of enhanced bank fragility. Overall, banking strategies that rely prominently on generating noninterest income or attracting nondeposit funding are very risky, consistent with the demise of the US investment banking sector. 2012-03-30T07:33:47Z 2012-03-30T07:33:47Z 2010 Journal Article Journal of Financial Economics 0304405X http://hdl.handle.net/10986/5635 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	EN
topic	Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Investment Banking Venture Capital Brokerage Ratings and Ratings Agencies G240
spellingShingle	Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Investment Banking Venture Capital Brokerage Ratings and Ratings Agencies G240 Demirguc-Kunt, Asli Huizinga, Harry Bank Activity and Funding Strategies : The Impact on Risk and Returns
relation	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description	This paper examines the implications of bank activity and short-term funding strategies for bank risk and return using an international sample of 1,334 banks in 101 countries leading up to the 2008 financial crisis. Expansion into noninterest income-generating activities such as trading increases the rate of return on assets, and it could offer some risk diversification benefits at very low levels. Nondeposit, wholesale funding in contrast lowers the rate of return on assets, while it can offer some risk reduction at commonly observed low levels of nondeposit funding. A sizable proportion of banks, however, attract most of their short-term funding in the form of nondeposits at a cost of enhanced bank fragility. Overall, banking strategies that rely prominently on generating noninterest income or attracting nondeposit funding are very risky, consistent with the demise of the US investment banking sector.
format	Journal Article
author	Demirguc-Kunt, Asli Huizinga, Harry
author_facet	Demirguc-Kunt, Asli Huizinga, Harry
author_sort	Demirguc-Kunt, Asli
title	Bank Activity and Funding Strategies : The Impact on Risk and Returns
title_short	Bank Activity and Funding Strategies : The Impact on Risk and Returns
title_full	Bank Activity and Funding Strategies : The Impact on Risk and Returns
title_fullStr	Bank Activity and Funding Strategies : The Impact on Risk and Returns
title_full_unstemmed	Bank Activity and Funding Strategies : The Impact on Risk and Returns
title_sort	bank activity and funding strategies : the impact on risk and returns
publishDate	2012
url	http://hdl.handle.net/10986/5635
_version_	1764395763776880640

Bank Activity and Funding Strategies : The Impact on Risk and Returns

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