AUSTRALIAN SPECIFIC BANK FEATURES AND THE IMPACT OF INCOME DIVERSIFICATION ON BANK PERFORMANCE AND RISK 澳大利亚特定银行特征及收入多元化对银行绩效和风险的影响.pdf

bs_bs_banner AUSTRALIAN SPECIFIC BANK FEATURES AND THE IMPACT OF INCOME DIVERSIFICATION ON BANK PERFORMANCE AND RISK* PIYADASA EDIRISURIYA Monash University ABEYRATNA GUNASEKARAGE Monash University MICHAEL DEMPSEY RMIT University Since financial market deregulation, Australian banks have significantly diversified from a dependence on simple products such as interest-bearing loans to a broader range of financial products services. Such initiatives have transformed the structure of the Australian banking industry and are destined to receive scrutiny following the announcement of Australia’s financial services inquiry. Against the common view that attempts by firms to diversify can be expected to impact negatively on financial performance, we find no strong evidence to suggest that diversification has been unfavourable to the performance of Australian banks. We find rather that Australia’s banks have improved their risk-return profiles as an outcome of diversification. I. I n t r o d u c t i o n The academic literature has generally been inconclusive as to the outcomes of firm diversification. Against this background, deregulation in the finance industry has encouraged commercial banks to diversify from a traditional focus on lending funds to a range of functions, including securities-related activities, insurance, foreign exchange, derivatives, investment management, financial planning, and many other off-balance sheet activities. Such activities often cross international boundaries. Our context in the present paper is t