Non-Interest Income Activities and Bank Lending

Pejman Abedifar (1) , Philip Molyneux (2) , Amine Tarazi (1)

1 LAPE - Laboratoire d'Analyse et de Prospective Economique
2 Business School

This paper investigates the impact of non-interest income businesses on bank lending. Using quarterly data on 8,287 U.S. commercial banks over 2003-2010, we find that the non-interest income activities of banks with total assets above $100 million ('non-micro' banks) influence credit risk. In particular, banks that have higher income from fiduciary activities have lower credit risk. The impact is more pronounced during the post-crisis period. Our findings suggest that fiduciary activities induce managers to behave more prudently in lending because such activities are found to increase banks' franchise value. Other non-interest income activities that may be thought to have an influence on lending - such as service charges on deposit accounts - do not appear to have any robust relationship with the quality of credit extended. Moreover, we find little evidence of income or price cross- subsidization between traditional intermediation and non-interest income activities, except for fiduciary activities after the crisis. Furthermore, we find that micro banks suffer from diseconomies in joint production of non-interest income activities and lending.

Mots clés: Non-interest Income; Fiduciary; Credit Risk; Spread; Cost Complementarities

Domaines: Economies et finances

Pejman Abedifar, Philip Molyneux, Amine Tarazi. Non-Interest Income Activities and Bank Lending. 2014. ⟨hal-00947074v2⟩