• Is the Diversification of Bank Income the Bright Side or Dark Side? A Global Perspective

Abstract

The paper examines the effects of bank diversification on risk using a global sample from 95 countries. We find evidence that diversification will mitigate the banking risk in high-income countries, European or America region, whereas increase the likelihood of bank failures in median-low-income countries. Second, when banks have relatively excessive non-interest income, they have fewer potential diversification gains. Finally, we also find that a better country’s law and bureaucracy will help improve the relationship between bank diversification and risk, but stronger creditor rights’ protection and more regulatory restrictions on bank activities will worsen them.

Keywords: Banking, Diversification, Risk