This chapter examines the literature on bank diversification and risk, that is, the risks inherent in the diversification of banks into non-bank activities. In particular, this mainly US literature considers the expansion of bank holding companies into non-bank activities. The main objective of these US studies was to predict the potential impact of more liberal laws governing bank holding companies’ (BHCs) permissible activities. Most studies have concentrated on the asset risk of BHCs and, using portfolio theory, attempted to estimate potential risk-reducing effects. The first section of this chapter briefly discusses the application of portfolio theory to corporate diversification.
KeywordsCovariance Income Rosen Volatility Conglomerate
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