The dark side of diversification: The case of US financial holding companies

Stiroh, Kevin J.; Rumble, Adrienne S.

doi:10.1016/j.jbankfin.2005.04.030

Cited by 930 publications

(871 citation statements)

References 33 publications

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“…More specifically, Stiroh (2004a,b) and Stiroh and Rumble (2006) investigate whether small U.S. banks experience diversification gains from being involved in non-traditional activities. The results reveal the negative impact of non-traditional bank related activities on banks' performance, while for the case of U.S. financial holding companies they provide strong evidence that non-traditional bank activities contribute substantial to the deterioration of banks' risk profiles.…”

Section: Literature Reviewmentioning

confidence: 99%

The long-term role of non-traditional banking in profitability and risk profiles: Evidence from a panel of U.S. banking institutions

Apergis

2014

Journal of International Money and Finance

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Acknowledgements:The author wishes to thank a referee of this journal for her/his excellent as well as useful comments and suggestions that substantially improved the merit of an earlier version of the paper. Special thanks also go to Angelos Antzoulatos, Yiannis Georgellis and Chris Tsoumas for additional thoughts and suggestions. Needless to say, the usual disclaimer applies.The long-term role of non-traditional banking in profitability and risk profiles: Evidence from a panel of U.S. banking institutions ABSTRACT The goal of this empirical study is to identify empirically and on a panel basis how nontraditional 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.

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Section: Literature Reviewmentioning

confidence: 99%

The long-term role of non-traditional banking in profitability and risk profiles: Evidence from a panel of U.S. banking institutions

Apergis

2014

Journal of International Money and Finance

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“…On the other hand, non-interest incomes generated from involving non-traditional activities are quite volatile, and thus risky (Stiroh and Rumble, 2006).…”

Section: Other Covariatesmentioning

confidence: 99%

The Risk-Taking Channel of Monetary Policy in the USA: Evidence from Micro-Level Data

Delis

Hasan²,

Mylonidis³

2012

SSRN Journal

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There is a growing consensus that a prolonged period of low interest rates can exert a negative impact on financial stability through the risk-taking incentives of banks. Using micro-level datasets from the US banking sector, this paper finds evidence of a highly significant negative relationship between monetary policy rates and bank-risk taking. This finding remains robust across various specifications, sub-periods and subsamples, thereby confirming the presence of an active risk-taking channel of monetary policy since the 1990s. The results, therefore, support the new responsibilities of the Fed on macro-prudential supervision to monitor systemic risks.

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“…The main risk-reduction gains appear to arise from combining commercial banking with insurance activities, rather than with securities activities. In a recent paper focusing on US financial holding companies, Stiroh and Rumble (2006) find that diversification from lending into non-interest activities damages risk-adjusted performance. Robust statistical results show that any scope-related gains are more than offset by the higher volatility of these activities.…”

Section: Literature Reviewmentioning

confidence: 99%

Do financial conglomerates create or destroy economic value?

Schmid

Walter

2009

Journal of Financial Intermediation

208

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This paper attempts to ascertain whether or not functional diversification is valueenhancing or value-destroying in the financial services sector. Based on a U.S. dataset comprising approximately 4060 observations covering the period 1985-2004, we report a substantial and persistent conglomerate discount among financial intermediaries. Our results suggest that it is diversification that causes the discount, and not that troubled firms diversify into other more promising areas. We also investigate the geographic dimension of diversification as well as the interaction between geographic scope and functional diversification and find that the value-destruction associated with functional diversification is not apparent in geographic diversification. A further finding is that there is a significant premium for the very largest of our sample firms (with total assets above 100bn USD) indicating that there are "too big to fail" guarantees for very large financial conglomerates.

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The dark side of diversification: The case of US financial holding companies

Cited by 930 publications

References 33 publications

The long-term role of non-traditional banking in profitability and risk profiles: Evidence from a panel of U.S. banking institutions

The long-term role of non-traditional banking in profitability and risk profiles: Evidence from a panel of U.S. banking institutions

The Risk-Taking Channel of Monetary Policy in the USA: Evidence from Micro-Level Data

Do financial conglomerates create or destroy economic value?

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