| Abstract: |
This paper contributes to the current literature dealing with the drivers of bank business model changes. We analyze the relationship between fee and commission income share and banks’ performance in terms of profitability, risk and risk-adjusted profitability in the European Union. We apply System Generalized Method of Moments on a unique data set of 329 EU banks in the 2005-2014 period, what resulted in three key findings. First, we did not find any diversification benefits by increasing the fee income share. So we can conclude that an increase in fee income share observed during last years in EU banks was driven mainly by external factors such as increased competition rather than by internal reasons. Second, higher reliance on equity financing and better quality of provided loans enhance banks’ performance. Third, bank business strategy and macroeconomic factors are crucial determinants of banks’ performance. |
