Small European banks: benefits from diversification?


Mercieca, Steve, Schaeck, Klaus and Wolfe, Simon (2007) Small European banks: benefits from diversification? Journal of Banking and Finance, 31, (7), 1975-1998. (doi:10.1016/j.jbankfin.2007.01.004).

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Description/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: Article
ISSNs: 0378-4266 (print)
Related URLs:
Keywords: small banks, product diversification, risk/return performance
Subjects: D History General and Old World > D History (General) > D901 Europe (General)
H Social Sciences > HG Finance
Divisions: University Structure - Pre August 2011 > School of Management
ePrint ID: 45887
Date Deposited: 20 Apr 2007
Last Modified: 27 Mar 2014 18:30
Contact Email Address: S.Mercieca@soton.ac.uk
URI: http://eprints.soton.ac.uk/id/eprint/45887

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