Menu Expand

An Analysis of Non-Traditional Activities at German Savings Banks – Does the Type of Fee and Commission Income Matter?

  1. Journals
  2. Economics, Finance, Business & Management
  3. Credit and Capital Markets – Kredit und Kapital
  4. Vol. 52, Issue 2
  5. pp. 253–289

JOURNAL ARTICLE

Cite JOURNAL ARTICLE

Style
Köhler, M. An Analysis of Non-Traditional Activities at German Savings Banks – Does the Type of Fee and Commission Income Matter?. Credit and Capital Markets – Kredit und Kapital, 52(2), 253-289. https://doi.org/10.3790/ccm.52.2.253
Köhler, Matthias "An Analysis of Non-Traditional Activities at German Savings Banks – Does the Type of Fee and Commission Income Matter?" Credit and Capital Markets – Kredit und Kapital 52.2, 2019, 253-289. https://doi.org/10.3790/ccm.52.2.253
Köhler, Matthias (2019): An Analysis of Non-Traditional Activities at German Savings Banks – Does the Type of Fee and Commission Income Matter?, in: Credit and Capital Markets – Kredit und Kapital, vol. 52, iss. 2, 253-289, [online] https://doi.org/10.3790/ccm.52.2.253
Format
Download

An Analysis of Non-Traditional Activities at German Savings Banks – Does the Type of Fee and Commission Income Matter?

Köhler, Matthias

Credit and Capital Markets – Kredit und Kapital, Vol. 52 (2019), Iss. 2 : pp. 253–289

Read Now Download (PDF)

Additional Information

Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.52.2.253
Language
English
Pages
37
Keywords

Author Details

Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Germany. Tel. +49 69 9566 4765, Fax +49 69 9566 4765

References

  1. Allen, F./Santomero, A. M. (2001): What Do Financial Intermediaries Do?, Journal of Banking and Financ, Vol. 25, pp. 271–294.  Google Scholar
  2. Altunbas, Y./Manganelli, S./Marques-Ibáñez, D. (2011): Bank Risk During the Financial Crisis – Do Business Models Matter?, ECB Working Paper Series, No. 1394.  Google Scholar
  3. Berger, A. (2000): The Integration of the Financial Services Industry: Where are the Efficiencies, North American Actuarial Journal, Vol. 4(3), pp. 25–45.  Google Scholar
  4. Bolton, P./Freixas, X./Shapiro, J. (2007): Conflict of Interest, Information Provision, and Competition in the Financial Services Industry, Journal of Financial Economics, Vol. 85, pp. 297–330.  Google Scholar
  5. Boyd, J. H./Graham, S. L./Hewitt, S. R. (1993): Bank Holding Company Mergers with Nonbank Financial Firms: Effects on the Risk of Failure, Journal of Banking and Finance, Vol. 17, pp. 43–63.  Google Scholar
  6. Bülbül, D./Noth, F./Tyrell, M. (2014): Why Do Banks Provide Leasing?, Journal of Financial Services Research, Vol. 46, pp. 137–175.  Google Scholar
  7. Chiorazzo, V./Milani, C./Salvini, F. (2008): Income Diversification and Bank Performance: Evidence from Italian Banks, Journal of Financial Services Research, Vol. 33, pp. 181–203.  Google Scholar
  8. Demirgüç-Kunt, A./Huizinga, H. (2010): Bank Activity and Funding Strategies: The Impact on Risk and Returns, Journal of Financial Economics, Vol. 98, pp. 626–650.  Google Scholar
  9. DeYoung, R./Rice, T. (2004): Noninterest Income and Financial Performance at US Commercial Banks, The Financial Review, Vol. 39, pp. 101–127.  Google Scholar
  10. Deutsche Bundesbank (2015): Financial Stability Review 2015.  Google Scholar
  11. DeYoung, R./Roland, K. P. (2001): Product Mix and Earnings Volatility at Commercial Banks: Evidence from a Degree of Total Leverage Model, Journal of Financial Intermediation 10: 54–84.  Google Scholar
  12. DeYoung, R./Torna, G. (2013): Non-traditional Banking Activities and Bank Failures During the Financial Crisis, Journal of Financial Intermediation, Vol. 22, pp. 397–421.  Google Scholar
  13. DSGV (2014): Inside the Savings Banks Finance Group Published by German Savings Banks Association http://www.dsgv.de.  Google Scholar
  14. Houston, J. F./Lin, C./Lin, P./Ma, Y. (2010): Creditor Rights, Information Sharing, and Bank Risk-Taking, Journal of Financial Economics, Vol. 96, pp. 485–512.  Google Scholar
  15. Huang, R./Ratnovski, L. (2011): The Dark Side of Bank Wholesale Funding, Journal of Financial Intermediation, Vol. 20, pp. 248–263.  Google Scholar
  16. Köhler, M. (2014): Does Non-Interest Income Make Banks More Risky? Retail- Versus Investment-Oriented Banks, Review of Financial Economics, Vol. 23, pp. 182–193.  Google Scholar
  17. Köhler, M. (2015): Which Banks are More Risky? The Impact of Business Models on Bank Stability, Journal of Financial Stability, Vol. 16, pp. 195–212.  Google Scholar
  18. Krahnen, J. P./Schmidt, R. H. (2004): The German Financial System. Oxford University Press.  Google Scholar
  19. Laeven, L./Levine, R. (2009): Bank Governance, Regulation and Risk Taking, Journal of Financial Economics, Vol. 93, pp. 259–275.  Google Scholar
  20. Lepetit, L./Nys, E./Rous, P./Tarazi, A. (2008): Bank Income Structure and Risk: An Empirical Analysis of European Banks, Journal of Banking and Finance, Vol. 32, pp. 1452–1467.  Google Scholar
  21. Lepetit, L./Strobel, F. (2014): Bank Insolvency Risk and Z-score Measures: A Refinement, Finance Research Letters, Vol. 13, pp. 214–224.  Google Scholar
  22. Memmel, C. (2011): Banks’ exposure to interest rate risk, their earnings from term transformation, and the dynamics of the term structure, Journal of Banking and Finance, Vol. 35, pp. 282–289.  Google Scholar
  23. Mercieca, S./Schaeck, K./Wolfe, S. (2007), Small European Banks: Benefits from Diversification?, Journal of Banking and Finance, Vol. 31, pp. 1975–1998.  Google Scholar
  24. Puri, M./Rocholl, J./Steffen, S. (2011): Global Retail Lending in the Aftermath of the US Financial Crisis: Distinguishing Between Supply and Demand Effects, Journal of Financial Economics, Vol. 100, pp. 556–578.  Google Scholar
  25. Rogers, K./Sinkey, J. F. (1999): An Analysis of Nontraditional Activities at U.S. Commercial Banks, Review of Financial Economics, Vol. 8, pp. 25–39.  Google Scholar
  26. Roy, A. D. (1952): Safety First and the Holding of Assets, Econometrica, Vol. 20, pp. 431–449.  Google Scholar
  27. Saunders, A./Schmid, M./Walter, I. (2014): Non-Interest Income and Bank Performance: Is Banks’ Increased Reliance on Non-Interest Income Bad?, University of St. Gallen School of Finance Research Paper, No. 2014/17.  Google Scholar
  28. Stiroh, K. J. (2004a): Diversification in Banking: Is Non-interest Income the Answer?, Journal of Money, Credit, and Banking, Vol. 36, pp. 853–882.  Google Scholar
  29. Stiroh, K. J. (2004b): Do Community Banks Benefit from Diversification?, Journal of Financial Services Research, Vol. 25, pp. 135–160.  Google Scholar
  30. Stiroh, K. J. (2006): New Evidence on the Determinants of Bank Risk, Journal of Financial Services Research, Vol. 30, pp. 237–263.  Google Scholar
  31. Stiroh, K. J./Rumble, A. (2006): The Dark Side of Diversification: The Case of US Financial Holding Companies, Journal of Banking and Finance, Vol. 30, pp. 2131–2161.  Google Scholar
  32. Allen, F./Santomero, A. M. (2001): What Do Financial Intermediaries Do?, Journal of Banking and Financ, Vol. 25, pp. 271–294.  Google Scholar
  33. Altunbas, Y./Manganelli, S./Marques-Ibáñez, D. (2011): Bank Risk During the Financial Crisis – Do Business Models Matter?, ECB Working Paper Series, No. 1394.  Google Scholar
  34. Berger, A. (2000): The Integration of the Financial Services Industry: Where are the Efficiencies, North American Actuarial Journal, Vol. 4(3), pp. 25–45.  Google Scholar
  35. Bolton, P./Freixas, X./Shapiro, J. (2007): Conflict of Interest, Information Provision, and Competition in the Financial Services Industry, Journal of Financial Economics, Vol. 85, pp. 297–330.  Google Scholar
  36. Boyd, J. H./Graham, S. L./Hewitt, S. R. (1993): Bank Holding Company Mergers with Nonbank Financial Firms: Effects on the Risk of Failure, Journal of Banking and Finance, Vol. 17, pp. 43–63.  Google Scholar
  37. Bülbül, D./Noth, F./Tyrell, M. (2014): Why Do Banks Provide Leasing?, Journal of Financial Services Research, Vol. 46, pp. 137–175.  Google Scholar
  38. Chiorazzo, V./Milani, C./Salvini, F. (2008): Income Diversification and Bank Performance: Evidence from Italian Banks, Journal of Financial Services Research, Vol. 33, pp. 181–203.  Google Scholar
  39. Demirgüç-Kunt, A./Huizinga, H. (2010): Bank Activity and Funding Strategies: The Impact on Risk and Returns, Journal of Financial Economics, Vol. 98, pp. 626–650.  Google Scholar
  40. DeYoung, R./Rice, T. (2004): Noninterest Income and Financial Performance at US Commercial Banks, The Financial Review, Vol. 39, pp. 101–127.  Google Scholar
  41. Deutsche Bundesbank (2015): Financial Stability Review 2015.  Google Scholar
  42. DeYoung, R./Roland, K. P. (2001): Product Mix and Earnings Volatility at Commercial Banks: Evidence from a Degree of Total Leverage Model, Journal of Financial Intermediation 10: 54–84.  Google Scholar
  43. DeYoung, R./Torna, G. (2013): Non-traditional Banking Activities and Bank Failures During the Financial Crisis, Journal of Financial Intermediation, Vol. 22, pp. 397–421.  Google Scholar
  44. DSGV (2014): Inside the Savings Banks Finance Group Published by German Savings Banks Association http://www.dsgv.de.  Google Scholar
  45. Houston, J. F./Lin, C./Lin, P./Ma, Y. (2010): Creditor Rights, Information Sharing, and Bank Risk-Taking, Journal of Financial Economics, Vol. 96, pp. 485–512.  Google Scholar
  46. Huang, R./Ratnovski, L. (2011): The Dark Side of Bank Wholesale Funding, Journal of Financial Intermediation, Vol. 20, pp. 248–263.  Google Scholar
  47. Köhler, M. (2014): Does Non-Interest Income Make Banks More Risky? Retail- Versus Investment-Oriented Banks, Review of Financial Economics, Vol. 23, pp. 182–193.  Google Scholar
  48. Köhler, M. (2015): Which Banks are More Risky? The Impact of Business Models on Bank Stability, Journal of Financial Stability, Vol. 16, pp. 195–212.  Google Scholar
  49. Krahnen, J. P./Schmidt, R. H. (2004): The German Financial System. Oxford University Press.  Google Scholar
  50. Laeven, L./Levine, R. (2009): Bank Governance, Regulation and Risk Taking, Journal of Financial Economics, Vol. 93, pp. 259–275.  Google Scholar
  51. Lepetit, L./Nys, E./Rous, P./Tarazi, A. (2008): Bank Income Structure and Risk: An Empirical Analysis of European Banks, Journal of Banking and Finance, Vol. 32, pp. 1452–1467.  Google Scholar
  52. Lepetit, L./Strobel, F. (2014): Bank Insolvency Risk and Z-score Measures: A Refinement, Finance Research Letters, Vol. 13, pp. 214–224.  Google Scholar
  53. Memmel, C. (2011): Banks’ exposure to interest rate risk, their earnings from term transformation, and the dynamics of the term structure, Journal of Banking and Finance, Vol. 35, pp. 282–289.  Google Scholar
  54. Mercieca, S./Schaeck, K./Wolfe, S. (2007), Small European Banks: Benefits from Diversification?, Journal of Banking and Finance, Vol. 31, pp. 1975–1998.  Google Scholar
  55. Puri, M./Rocholl, J./Steffen, S. (2011): Global Retail Lending in the Aftermath of the US Financial Crisis: Distinguishing Between Supply and Demand Effects, Journal of Financial Economics, Vol. 100, pp. 556–578.  Google Scholar
  56. Rogers, K./Sinkey, J. F. (1999): An Analysis of Nontraditional Activities at U.S. Commercial Banks, Review of Financial Economics, Vol. 8, pp. 25–39.  Google Scholar
  57. Roy, A. D. (1952): Safety First and the Holding of Assets, Econometrica, Vol. 20, pp. 431–449.  Google Scholar
  58. Saunders, A./Schmid, M./Walter, I. (2014): Non-Interest Income and Bank Performance: Is Banks’ Increased Reliance on Non-Interest Income Bad?, University of St. Gallen School of Finance Research Paper, No. 2014/17.  Google Scholar
  59. Stiroh, K. J. (2004a): Diversification in Banking: Is Non-interest Income the Answer?, Journal of Money, Credit, and Banking, Vol. 36, pp. 853–882.  Google Scholar
  60. Stiroh, K. J. (2004b): Do Community Banks Benefit from Diversification?, Journal of Financial Services Research, Vol. 25, pp. 135–160.  Google Scholar
  61. Stiroh, K. J. (2006): New Evidence on the Determinants of Bank Risk, Journal of Financial Services Research, Vol. 30, pp. 237–263.  Google Scholar
  62. Stiroh, K. J./Rumble, A. (2006): The Dark Side of Diversification: The Case of US Financial Holding Companies, Journal of Banking and Finance, Vol. 30, pp. 2131–2161.  Google Scholar

Abstract

In this paper, we use a fully anonymized dataset provided by the German Savings Banks Association (DSGV) to analyse which savings banks have expanded into fee-producing activities more quickly. In addition, we investigate whether their profitability and stability is correlated with the share of their fee and commission income. Notably, we examine whether the effect on bank profitability differs depending on the type of fee and commission income. Our results support the view that savings banks with low net interest margins are under greater pressure to expand into fee-producing activities. They further suggest that savings banks with a higher share of fee and commission income, in particular from payment services and securities business, also have a higher profitability. The Z-score also correlates positively with the share of securities business income, possibly because it responds to different shocks than net interest income and, therefore, offers a large diversification potential.

Table of Contents

Section Title Page Action Price
Matthias Köhler: An Analysis of Non-Traditional Activities at German Savings Banks – Does the Type of Fee and Commission Income Matter? 1
Abstract 1
Zusammenfassung: Eine Analyse nicht-traditioneller Aktivitäten deutscher Sparkassen – Spielt die Art des Provisionseinkommens eine Rolle? 1
I. Introduction 2
II. Striving for Fee-producing Activities 5
III. Data and Descriptive Statistics 9
1. The Relative Importance and Structure of Non-Interest Income 1
2. Correlates of Fee and Commission Income 1
IV. Correlates of Bank Profitability 1
1. Baseline Results 2
2. Components of Fee and Commission Income 2
3. Robustness Tests 2
V. Conclusions 3
References 3

Contact

Duncker & Humblot GmbH Carl-Heinrich-Becker-Weg 9 12165 Berlin, Deutschland T: +49 30 790006-0

Quick Navigation

2024 Duncker & Humblot GmbH

Powered by CloudPublish

We use cookies to ensure that you get the best experience on our website. Learn more about how we use cookies.