Does revenue diversification still matter in banking? Evidence from some European Countries

Following a common wisdom in banking, revenue diversification is likely to produce a “portfolio-effect” in bank income statement, enhancing the creation of greater and more stable profits. We test this hypothesis on a sample of 110 large commercial, saving and cooperative banks headquartered in 8 EMU countries for the period 2005-2013. Results indicate that diversification strategies have had a role in determining banks profitability only for selected subsamples (and in particular for commercial and saving banks); on the contrary, efficiency and credit portfolio quality have been the main drivers of profits in the period under examination. We contribute to previous literature using a cross-country balanced dataset that covers both the pre-crisis and the following economically troubled periods. Topics underlying this work – and empirical results – have relevant policy implications from a managerial and regulatory point of view.