Diversifying banks' activities leads to higher returns and lower risks.
The study looked at how banks expanding into new types of businesses affected their risks and profits. They analyzed data from US banks between 2002 and 2012. The results showed that banks that diversified across different types of activities had higher profits and lower risks. However, banks that focused too much on non-traditional businesses had higher risks and lower profits. This means that diversification helped banks during the financial crisis, while too much focus on new activities did not.