Noninterest Income, Macroprudential Policy and Bank Performance

Abstract

Macroprudential policies have become crucial tools for maintaining financial stability, but their effect on banks’ noninterest income has not yet been examined. This is a paradox in light of results in the literature linking noninterest income to bank performance indicators such as risk and profitability. Using a global sample of 7,368 banks over 1990-2022, we find macroprudential policies have a significant positive effect on noninterest income. Similar results are found for disaggregated samples by type of noninterest income, country development, bank size and pre and post the Global Financial Crisis, and in three robustness checks. However, the extent to which such positive effects feed through to overall profitability depends on the type of noninterest income. Furthermore, stimulus from macroprudential policies to noninterest income, and especially its nonfee component, is found to affect bank risk adversely. Our findings have important implications for central bankers, regulators and commercial bank management.