The product-line diversification effect occurs when the revenues generated by traditional banking service and a nontraditional banking service are not very correlated with each other and reduce the overall risk of the bank.

Question

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The product-line diversification effect is a well-known phenomenon in banking where a bank diversifies its product line by offering both traditional banking services, such as loans and deposits, and non-traditional banking services, such as insurance and investment banking. If the revenues from these services are not very correlated with each other, they can offset each other's risks, reducing the overall risk of the bank. Therefore, the statement is true.

The Product-Line Diversification Effect Occurs When the Revenues Generated by Traditional