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Small European banks: benefits from diversification?

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

Record type: Article


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

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Published date: July 2007
Keywords: small banks, product diversification, risk/return performance
Organisations: Management


Local EPrints ID: 45887
ISSN: 0378-4266
PURE UUID: 4457f745-a2fe-42eb-a2dd-2ec49eaf5d19

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Date deposited: 20 Apr 2007
Last modified: 17 Jul 2017 15:10

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Author: Steve Mercieca
Author: Klaus Schaeck
Author: Simon Wolfe

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