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Open AccessArticle

Toward a More Resilient Financial System: Should Banks Be Diversified?

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Department of Finance and Accounting, University of Deusto, Mundaitz Kalea, 50, 20012 Donostia, Spain
2
Department of Financial Economics and Accounting, Universidad Pablo de Olavide, Ctra. de Utrera km. 1, 41013 Seville, Spain
*
Author to whom correspondence should be addressed.
Sustainability 2018, 10(6), 1903; https://doi.org/10.3390/su10061903
Received: 28 February 2018 / Revised: 31 May 2018 / Accepted: 5 June 2018 / Published: 7 June 2018
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
This article empirically analyzes the effects of revenue diversification on the profitability and risk of a large sample of Eurozone banks over the period from 2000 to 2012. We use the generalized method of moments (GMM) estimator, which is also referred to as the system-GMM estimator. We conclude that higher income diversification favors bank profitability. However, our study does not find a significant relationship between revenue diversification and bank risk, even when considering a crisis period. Our results suggest that establishing restrictions in the universal banking model could damage the resilience of the financial system, and thus affect the sustainability of the uneven economic recovery in Europe. View Full-Text
Keywords: diversification; bank profitability; bank risk; dynamic panel; European banking system; sustainability of economic recovery diversification; bank profitability; bank risk; dynamic panel; European banking system; sustainability of economic recovery
MDPI and ACS Style

Baselga-Pascual, L.; Del Orden-Olasagasti, O.; Trujillo-Ponce, A. Toward a More Resilient Financial System: Should Banks Be Diversified? Sustainability 2018, 10, 1903.

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