Abstract
Using a sample of large banks across 38 countries this paper examines how the concentration of the banking system impacts the choice of business activities and consequently the stability of banks. We show that banks in less concentrated banking systems have higher levels of non-traditional business activities with higher shareholder returns, but at a cost of increased systemic risk. In contrast, the non-traditional business activities in highly concentrated banking systems help reduce the volatility of profits and also the systemic risk of banks. Unlike previous research we show that there is not always a one-to-one relationship between non-traditional business activities and systemic risk.
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