Evaluating the effects of non-interest income on the income and risk of banks in banking sector: The implementation on some leading banks in the USA and Turkey

Owing to the advances in technology, decrease in profit margins and inflation rates as well as the increase in the competition among banks, banks have started to provide their clients with broad service including new financial products in order to benefit from the diversification. This increase in diversification products has raised the importance of the traditional source of income such as interest income as well as the nontraditional source of income like noninterest income. It has been argued that the reason for changing the source of income from the interest income operations to the noninterest income operations is the expansion in the product line with the help of the noninterest income operations, cross-selling opportunities which have smoothed the bank incomes by diversifying bank income portfolio and non-interest incomes? being less depended on market conditions by banking risks compared to the traditional interest incomes which has eased cyclical change in their incomes by declining total volatility. In this study, the effects of the change in the source of income of deposit banks, which operated in the USA and Turkey in 2003- 2012, from interest incomes to non-interest incomes on the banking performance have been researched. ?Panel data? and ?Pooled Data? analysis methods have been used in this study. The study has revealed that there is a positive influence of the income diversification which is ensured by the change in the banks? incomes from interest incomes to non-interest incomes. Nonetheless, the study has showed that the income diversification decreases banking performance since it does not meet the negative impact of being exposed to non-interest income that is more volatile compared to interest income, which reveals the fact that the argument that the increase in non-interest income in banking sector makes banks? income steady and smooth or decreases total volatility is invalid.