Empirical Analysis For The Impact Of Non-interest Business On Systemic Risk

Non-interest income occupies a very important position in the modern banks'income structure.Our commercial banks'non-interest business started late,but developed very rapidly.In the recent years the growth rate of our commercial banks'non-interest income had exceeded the increase of interest income.Based on the perspective of financial statements,this paper defines the non-interest income.In this paper non-interest income includes fee and commission income and other non-interest income. This paper examines the empirical relationship between non-interest income and systemic risk.In the non-interest business banks are competing with other capital market intermediaries such as investment banks,insurance companies and private equity funds.This paper uses△CoVaR as the proxy for systemic risk and examines three primary issues:(1) Is there a relationship between systemic risk (△CoVaR) and a bank's non-interest income?(2)This paper categorize non-interest income into two sub-groups,namely,fee and commission income and other non-interest income.This paper examines if any sub-group has a significant effect on systemic risk?(3)Does a bank's non-interest income have a significant effect on Exposure CoVaR?This paper finds that systemic risk and an individual institutionis exposure to system wide distress is higher for banks with a higher non-interest income to interest income ratio. This suggests that activities that are not traditionally associated with banks are associated with a larger contribution to systemic risk,and in the event of systemic crisis, a bank who is depending on non-interest business will suffer greater impact. When this paper can decompose total non-interest income into two components,this paper finds fee and commission income and other non-interest income has a significant effect on systemic risk.However,a bank's fee and commission income does not have a significant effect on Exposure CoVaR and the effect from other non-interest income is very significant.Based on these findings,this paper suggests regulatory authorities should strengthen its supervision to avoid triggering the systemic risk during the development of non-interest business.In terms of risk management for banks,a reasonable structure of non-interest income can reduce an individual institution's exposure to system wide distress.