Banks' Non-Interest Income and Systemic Risk

This paper finds non-interest income to be positively correlated with total systemic risk for a large sample of U.S. banks. Decomposing total systemic risk into three components, we find that non-interest income has a positive relationship with a bank's tail risk, a positive relationship with a bank's interconnectedness risk, and an insignificant or positive relationship with a bank's exposure to macroeconomic and finance factors. These results are generally robust to endogenizing for non-interest income and for trading and other non-interest income activities