Australian Specific Bank Features and the Impact of Income Diversification on Bank Performance and Risk

Since financial market deregulation, A ustralian banks have significantly diversified from a dependence on simple products such as interest‐bearing loans to a broader range of financial products services. Such initiatives have transformed the structure of the A ustralian banking industry and are destined to receive scrutiny following the announcement of A ustralia's financial services inquiry. Against the common view that attempts by firms to diversify can be expected to impact negatively on financial performance, we find no strong evidence to suggest that diversification has been unfavourable to the performance of A ustralian banks. We find rather that A ustralia's banks have improved their risk‐return profiles as an outcome of diversification.