Income Diversification and Bank Risk-Taking : Evidence from Chinese Listed Bank

다국어 초록 (Multilingual Abstract)

In the context of the current globalization of the financial market and innovation in the financial services industry, commercial banks are continuously optimizing their profit structure. They have embarked on transforming their business by diversifying their services and consequently their income. On the one hand, by diversifying their income structure the banks may improve their operating performance, however, on the other hand, they may simultaneously be exposing themselves to greater operating risks. When a crisis occurs, commercial banks will have a significant impact on the overall economy because they are an important component of the financial system.
Since 2006, non-interest income has become an indispensable source of income for China’s commercial banks because its growth rate has surpassed the growth rate of net-interest income. Subsequently, reform of the marketization of the interest rate was essentially achieved in October 2015. This indicated that commercial banks had acquired the power to set interest rates independently. The present research used the GMM estimation method to study the characteristics of banks of different sizes and the non-linear relationship between the diversification of their income, and the amount of risk they face. The financial data of 35
commercial banks in China for the period 2009 to 2018, was used as the sample to conduct the present empirical analysis.
The empirical results show that there is a significant positive non-linear U-shaped correlation between the level of diversification of commercial banks and the amount of operating risk they face. In addition, in the process of diversification, large and medium-sized banks face higher operating risks than smaller banks. The empirical results of the present study were used to draw conclusions and to make policy recommendations for commercial banks operating at different scales and that are at different levels of diversification.

목차 (Table of Contents)

• I．Introduction 1
• Ⅱ．Literature Review and Hypothesis 4
• 2.1 Income Diversification and Risk-Taking by Banks 4
• 2.1.1 Diversified Operation Reduces the Risks Banks Face 4
• 2.1.2 Diversified Operation Increase the Risk Faced by Banks 6
• 2.2 Bank Size, Income Diversification and Risk-taking by Banks 8
• 2.3 Non-linear Relationship Between Income Diversification and Risks to Banks 10
• 2.4 Hypothesis 12
• 2.4.1 Income Diversification 12
• 2.4.2 Bank Size 13
• 2.4.3 Non-linear Relationship 14
• Ⅲ．Methodology 15
• 3.1 Data 15
• 3.2 Variable Interpretation 16
• 3.2.1 Dependent Variable 16
• 3.2.2 Independent Variable 16
• 3.2.3 Control Variables 17
• 3.3 Model 21
• 3.3.1 Benchmark Model 21
• 3.3.2 Heterogeneity 22
• 3.3.3 Non-linear Relationship 23
• Ⅳ．Empirical Analysis 25
• 4.1 Descriptive Statistics 25
• 4.2 Regression Analysis 28
• Ⅴ．Conclusion 38
• 5.1 Summary 38
• 5.2 Discussion 39
• References 42