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Non-interest income and bank lending

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Abedifar_2017_JBF_Non_interestincome_AAM.pdf (961.8Kb)
Date
02/2018
Author
Abedifar, Pejman
Molyneux, Philip
Tarazi, Amine
Keywords
Non-interest Income
Fiduciary
Credit risk
Spread
Profit complementarities
HB Economic Theory
HG Finance
3rd-NDAS
BDC
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Abstract
This paper examines the influence of non-interest activities on bank lending in terms of loan quality and interest spread. We also investigate the possible existence of profit complementarities between non-interest activities and lending. Using quarterly data on 6,921 U.S. commercial banks between 2007:Q3 to 2016:Q3 we find that non-interest activities have no adverse influence on bank credit risk. This is the case for banks of different asset size (including systemically important banks) as well as for distressed banks. There is evidence that banks with assets between $100 million and $1 billion that have a greater share of fiduciary income have lower credit risk. They also have lower interest rates on loans secured by real estate, and higher franchise values, particularly post-crisis. Moreover, banks in the aforementioned size range benefit from synergies in joint production of non-interest income and lending, whereas other banks, in particular smaller banks (below $100 million in assets) suffer from diseconomies of joint production. Larger banks exhibit cross-subsidization between several non-interest activities and lending business.
Citation
Abedifar , P , Molyneux , P & Tarazi , A 2018 , ' Non-interest income and bank lending ' , Journal of Banking & Finance , vol. 87 , pp. 411-426 . https://doi.org/10.1016/j.jbankfin.2017.11.003
Publication
Journal of Banking & Finance
Status
Peer reviewed
DOI
https://doi.org/10.1016/j.jbankfin.2017.11.003
ISSN
0378-4266
Type
Journal article
Rights
© 2017 Elsevier Ltd. This work has been made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.jbankfin.2017.11.003
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  • University of St Andrews Research
URI
http://hdl.handle.net/10023/17649

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