Closely related to banks risk profile is their degree of output diversification, which is likely to increase as specialised financial institutions seek safety in larger and more diversified groups. In principle, diversification lowers risk, but it may also lead to cost savings when jointly producing several outputs.
Greater output diversification is a likely concomitant of the increase in average bank size that will accompany consolidation in the banking sector. By now, academic research generally recognises that banks must be modelled as multi-output firms, but more work is needed on the measurement of the costs and benefits of joint production.