Abstract
We investigate whether noninterest income activities affect bank performance measures, and we present evidence consistent with the theory that synergy between interest and noninterest income improves performance. A decomposition of ROA into cost and revenue ratios reveals that the improved performance associated with noninterest income arises mainly through revenue efficiency. We find consistent results using a risk-adjusted performance measure. Our results also show that noninterest income activities do not adversely affect BHC performance during the 2008 financial crisis, and in some cases, they even improve performance. Our findings help inform policymakers regarding regulations permitting bank participation in noninterest income activities.
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