Small European banks:benefits from diversification?

Mercieca, Steve and Schaeck, Klaus and Wolfe, Simon (2007) Small European banks:benefits from diversification? Journal of Banking and Finance, 31 (7). pp. 1975-1998. ISSN 0378-4266

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Abstract

Motivated by the liberalisation and harmonisation of financial systems in Europe, we investigate whether the observed shift into non-interest income activities improves performance of small European credit institutions. Using a sample of 755 small banks for the period 1997–2003, we find no direct diversification benefits within and across business lines and an inverse association between non-interest income and bank performance. Our findings are robust to a set of sensitivity analyses using alternative samples and controlling for the regulatory environment. Furthermore, the results provide circumstantial evidence for the presence of economies of scale. The absence of benefits of diversification confirms findings for other banking markets and suggests small European banks enter lines of business where they currently lack expertise and experience. These results have implications for bank supervisors, regulators and bank managers.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Banking and Finance
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
73658
Deposited By:
Deposited On:
18 Jun 2015 05:39
Refereed?:
Yes
Published?:
Published
Last Modified:
03 Dec 2020 02:23