How functional and geographic diversification affect bank profitability during the crisis

Using bank-level data on 491 Italian banks over the period 20062012, we investigate the impact of functional and geographic diversification on bank performance during 2008's financial and 2010's sovereign debt crises. Both scenarios negatively affect bank profitability while discordant effects emerge in case of the Z-Score analysis. Italian banks' risk stays unaffected by the 2008's episode, while the sovereign debt crisis increases such risk. Results differ for the sample of mutual and not-mutual banks being the different banking groups characterized by different size and business models. (C) 2015 Elsevier Inc. All rights reserved.