Changing Bank Income Structure: Evidence from Large UK Banks?

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Author
Jaffar, Kalsoom
Mabwe, Kumbirai
Webb, Robert
Date
2014Type
Article
Publisher
Macrothink Institute
ISSN
1946-052X
Metadata
Show full item recordAbstract
The UK banking industry has steadily moved from the traditional role of financial
intermediation and is increasingly relying on non-traditional business activities that generate
fee income, dealings profit and other types of noninterest income. Using the dataset of large
British Banks for the period 1986-2012, this study investigates the changes in the bank income
structure as a result of the 1986 deregulation and tease out the effect that these changes have
had in relation to systemic risk. On a micro analysis, larger banks are more able to sustain high
levels of noninterest income. Among the banks Lloyds and HSBC stand out as the major players
in noninterest income generation. At aggregate level while interest income reflects a stable
trend, we find a significant upward but slightly volatile trend in noninterest income for the
period 1999-2008 before a sharp downturn induced by the financial crisis. This paper argues
that in terms of financial stability, the banks’ greater reliance on noninterest income particularly
commission income is associated with higher systemic risk. This study has shown that there is
a positive correlation between interest income and non-interest income for the five banks.
Journal/conference proceeding
Asian Journal of Finance & Accounting;
Citation
Jaffar, K., Mabwe, K. and Webb, R., 2014. Changing bank income structure: evidence from large UK banks?. Asian Journal of Finance & Accounting, 6 (2), pp.195-215
Description
Article published in Asian Journal of Finance & Accounting available at http://www.macrothink.org/journal/index.php/ajfa
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