Do tightening and loosening macroprudential policies affect income diversification?

We investigate how macroprudential policies such as tightening and loosening influence bank non-interest income across 67 countries over the 1996 and 2019 period. Our analysis provides strong evidence that the adoption of macroprudential policies, particularly those involving loosening, is associated with a notable increase in non-interest income, especially during crisis periods, suggesting banks diversify their income sources. This shift in focus towards non-interest income highlights the interplay between macroprudential policies and banks' income generation strategies. Moreover, we find that stricter liquidity requirements dampen income diversifications, whereas tighter leverage constraints produce the opposite effect. Our results are robust to several specifications.