Commercial bank mutual fund activities: Implications for bank risk and profitability

This paper examines the risk structure of bank holding companies and the effect of mutual fund activities on bank risk and profitability over the period 1987-1994. Findings from structural change tests indicate a significant decline in bank risk occurred near the mid-point of the study. Results from a confirmatory factor analytic model employed to examine the impact of mutual fund activities on banks suggest that mutual fund activities moderated bank industry systematic risk during the sample period. Mutual fund activities also increased the profitability of banks. These results suggest that mutual funds represent a productive avenue of expansion for bank holding companies.