Change in Bank Revenue; Change in Bank Risk? What Has Happened in Asia?

Increased bank non interest income has been found to be associated with higher bank specific risk as well as increased systemic risk (Brunnermeier, et al. (2012), Stiroh and Rumble (2006)). We adopt a time series approach to this issue for Asian nations to present a different perspective to this literature. We find that declines in bank interest margins are associated with both increased non interest income as well as increased bank risk. We also find that bank capital holdings are insensitive to changes in bank revenue. We argue that these results provide an objective basis for regulatory intervention to reduce the potential for systemic risk.