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Diversification of Banking Activity and Its Importance in Building Financial Stability

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Global Versus Local Perspectives on Finance and Accounting (ACFA2018 2018)

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Abstract

The most recent financial crisis has shown, however, that this form of investment may entail costs: although diversification reduces the bankruptcy chances for an individual bank. This study seeks to verify the importance of non-traditional banking activity for the financial stability of banks, using a sample of 1430 banks on a global scale, in 1995–2015. In particular, it verifies the fluctuations of the stability of commercial banks in the context of their asset levels. The study results have shown that the diversification of commercial banks’ income into non-traditional activities adversely affects their stability, with varying intensity for the different groups of asset volume. The study contributes to the ongoing discussion on the separation of retail and investment banks with a view to enhancing their resilience to losses and bankruptcy risk.

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Authors and Affiliations

  1. Faculty of Management, University of Warsaw, Szturmowa 1/3, 02-678, Warsaw, Poland

    Renata Karkowska

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  1. Renata Karkowska
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Correspondence to Renata Karkowska .

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Editors and Affiliations

  1. Faculty of Finance and Accounting, University of Economics, Prague, Prague, Czech Republic

    David Procházka

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Karkowska, R. (2019). Diversification of Banking Activity and Its Importance in Building Financial Stability. In: Procházka, D. (eds) Global Versus Local Perspectives on Finance and Accounting. ACFA2018 2018. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-11851-8_8

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