Nonlinear Relationship between diversification and bank profitability

This paper examines the relation between revenue diversification and bank profitability. We use the ratio of non-interest income to total income as our measure of diversification, and return on assets as our main measure of profitability. Using a sample of US bank holding companies from 2002 to 2014, we find a nonlinear relation between revenue diversification and bank profitability. When we divide banks into several groups by size, we find that the non- linear relation exists for large banks, but not for small and medium banks.