Abstract
We investigate the impact of interest and non-interest products and services on the margin a bank can derive from a specific customer. The analysis is based on 4,277 observations of relationships b...
Highlights
When the Banca de’ Medici was founded in Florence almost 650 years ago, its business model was simple: lending money to the powerful for the financing of risky ventures, such as war and trade
Our findings suggest that only long-term loans contribute significantly to a bank’s margin, whereas short-term loans and providing additional products and services do not affect the margin, the provision of cash management services even reduces the bank’s margin
Product and service diversification does entail benefits, it contains challenges, which are mainly associated with increased systematic market risk (Allen & Jagtiani, 2000) and the fact that the demand for additional products and services is found to be strongly related to the economic cycle (DeYoung & Roland, 2001; Mergaerts & Vander Vennet, 2016)
Summary
We investigate the impact of interest and noninterest products and services on the margin a bank can derive from a specific customer. Taking only financial considerations into account, our findings seem to suggest that small cooperative banks should concentrate on their core business, i.e. lending, instead of diversifying their products and services. By taking only financial considerations into account, small cooperative banks might forget about the non-financial impacts of their decisions, which may involve a considerable loss of information about SMEs. Small cooperative banks should consider the financial contribution of products and services when they decide on specialisation or diversification, but they should take non-financial aspects, such as the information gained, into consideration
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