A new approach to measuring universal banking

Article


D'Avino, C. and Shabani, M. 2020. A new approach to measuring universal banking. Bulletin of Economic Research. https://doi.org/10.1111/boer.12261
AuthorsD'Avino, C. and Shabani, M.
Abstract

Noninterest income is widely used in the literature to account for the degree of the universal business model by banks. This paper proposes a novel measure of universal banking constructed using the relative contribution of each operating segment to total assets using an entropy approach. We here propose a novel dataset containing the Universal Banking Index (UBI) at both country and bank levels. Using a sample of international banks, we evaluate the extent to which our proposed metric affects banks’ profitability, stability, liquidity and capitalisation. Results suggest that a higher degree of diversification is associated with increased stability. In addition, banks that feature a more diversified business model, as proxied by the UBI, are also better capitalised, as opposed to banks with high noninterest income share. Our results suggest that regulatory‐induced restriction on universal banking may indeed reduce the benefits of risk sharing across operating segments, exposing banks to heightened risks.

JournalBulletin of Economic Research
ISSN0307-3378
1467-8586
Year2020
PublisherWiley
Accepted author manuscript
License
File Access Level
Anyone
Digital Object Identifier (DOI)https://doi.org/10.1111/boer.12261
Web address (URL)https://doi.org/10.1111/boer.12261
Publication dates
Online09 Aug 2020
Publication process dates
Accepted22 Jun 2020
Deposited21 Aug 2020
Copyright holder© Wiley and Board of Trustees of the Bulletin of Economic Research
Copyright informationThis is the peer reviewed version of the following article: Shabani, M, D'Avino, C. A new approach to measuring universal banking. Bull Econ Res.. 2020; 1– 27, which has been published in final form at https://doi.org/10.1111/boer.12261. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
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