We investigate whether and how the uniqueness of banking activities affects the performance and systemic risk of U.S. banks. We find that banks performing more unique activities exhibit higher profitability and lower risk, controlling for size, diversification, and other key characteristics. We further find that banks’ sensitivity to systemic risk displays an inversely U-shaped relation with activity uniqueness. We interpret the impact of uniqueness in analogy to recent theories showing that systemic diversity promotes financial stability. Our study highlights the role of uniqueness in banking and has important implications for policy makers and banking regulators.

We examine the impact of competition on bank earnings persistence by exploiting a natural experiment following interstate banking deregulation that increased bank competition. We find that bank earnings adjustment speed increases after their states implement the deregulation. This relationship is weakened, however, with the increase of bank's abilities to sustain earnings, as reflected in size, diversification, managerial efficiency and safety. We further find that the impact of compeititon on bank earnings adjustment speed is direct but not indirectly through the channel of earnings management.

Using a unique proprietary dataset of daily mutual fund trading records and the COVID-19 pandemic-triggered lockdown in Wuhan (China) as a natural experiment, we find that individual mutual fund investors in Wuhan significantly reduced their daily trading frequency, total investment of their portfolios, and risk level of their invested funds during the lockdown period as compared to investors in other cities. The results suggest that the elimination of face-to-face interaction among individual investors during the lockdown reduced their information sharing, which led to more conservatism in their financial trading. We rule out alternative explanations of salience bias due to limited investor attention and temporary changes in personal circumstances such as depression and/or income reduction, during the lockdown period. Finally, consistent with the theory of naïve investor trading, we also find that investors received higher trading returns during the lockdown as they reduced trading aggressively in the absence of face-to-face interactions.

This paper examines the intensity of competition in 65 national banking industries. Country-level dynamic panel estimates of the persistence of bank profit are reported and compared. Persistence of bank profit is interpreted as an indicator of the intensity of competition, and as such is found to be consistent with traditional structure-based and conduct-based competition indicators. Persistence is negatively related to the rate of growth in GDP per capita, and positively related to the size of entry barriers. Persistence tends to be weaker, and competition stronger, in countries where institutional development is more advanced and external governance mechanisms are strong.