Do diversified banks lend more?

Diversified banks [not only] lend more in normal times, but they are also able “to maintain credit supply during negative shocks, when credit availability is paramount,” it asserted. Bank diversification is not a zero-sum game, the paper pointed out. “The lending resiliency of more diversified banks does not come at the expense of other banks.

Does diversification affect bank risk?

In spite of a rich amount of works that assess the relationship between diversification and bank risk, only few of them disentangle the direct and the indirect impact of diversification on bank risk by investigating the potential conduits that may transmit the impact of diversification to bank risk.

Is banking diversification strategy endogenous?

Since banking diversifying strategy would be affected by different levels of diversification of other banks or banking system, we include year and bank fixed effect in panel-data regression estimation. In addition, decision on banking diversification should be endogenous ( Campa & Kedia, 2002; Elsas, Hackethal, & Holzhauser, 2010 ).

Why do banks classify banks by diversification instead of nationality?

We find that classifying banks by diversification instead of nationality uncovers differences in lending behavior. While diversified banks maintain a higher loan supply than concentrated banks during banking crises, foreign banks reduce their loan supply by more than domestic banks.