3.2. Empirical models and variable definitionsIn this study, we examine whether diversified banks are more financially stable than non-diversified banks are. Because previousempirical studies present inconclusive results, we hypothesize that the effect of bank diversification on financial stability is non-linearand varies depending on the degree of diversification. To test this hypothesis, we include the squared ratio of lagged non-interest incometo total operating revenue (Lag SQ non-interest income/TOR) in our regression equations. We also analyze the effect of bank diversifi-cation on financial stability by considering the influence of the recent financial crisis, which previous studies have overlooked. Specifically, we estimate Equations (1) and (2):