Title: The effect of bank diversification on the capital, risk, profitability and efficiency of the eurozone and the US banks in the aftermath of the global financial crisis

Authors: Dimitra Loukia Kolia; Simeon Papadopoulos

Addresses: University of Macedonia, 156 Egnatia Street, GR-54636, Thessaloniki, Greece ' University of Macedonia, 156 Egnatia Street, GR-54636, Thessaloniki, Greece

Abstract: This paper investigates the influence of bank diversification on bank capital, risk, profitability and efficiency in a dynamic panel estimator. We also examine: 1) how the influence differs depending on the type of diversification (asset, income, non-interest income diversification); 2) whether diversification affects the eurozone banks differently than the US banks; 3) which banking type (commercial, cooperative and savings banks) is more benefited from diversification. Our findings indicate that income diversification has substantial benefits when compared to other types of diversification. Whereas non-interest income diversification has the most unfavourable results for the reported groups. Additionally, the impact of asset diversification is mixed for the dependent variables and it is contingent on whether a bank belongs to eurozone or to the USA. Finally, our survey highlights how different bank types (commercial, cooperative or savings banks) are influenced by bank diversification.

Keywords: bank; capital; risk; efficiency; profitability; data envelopment analysis; adjusted Herfindahl-Hirschman indices; system-GMM.

DOI: 10.1504/IJFMD.2023.129097

International Journal of Financial Markets and Derivatives, 2023 Vol.9 No.1/2, pp.1 - 42

Received: 07 Oct 2022
Accepted: 28 Dec 2022
Published online: 17 Feb 2023 *