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 7395 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, stimulus from macroprudential policies to noninterest income, and especially its non-fee component, is found to adversely affect bank risk. Furthermore, while significant effects of noninterest income on profitability are generally positive, this is not the case for non-fee income. Our findings have important implications for central bankers, regulators and commercial bank management.