Using bank accounting data for 22 countries in Asia over the period 1995-2009, this article is the first to apply the dynamic panel Generalized Method of Moments (GMM) technique to investigate the impacts of diversification on profitability and risk for 967 banks. We find that income diversification in Asian banks reduces risk, but does not increase profitability on a broad sample basis. When bank specialization and a country’s income level are considered, the results become complicated. Diversification decreases profitability as well as increases risk for savings banks. The impact is also different for commercial, cooperative, and investment banks either by increasing profitability or reducing risk. On the other hand, diversification increases risk for banks in high income countries, while increasing profitability or reducing risk for banks in middle and low income countries. Finally, our results further reveal that the persistence of risk is greatly affected by bank specialization and a country’s income level, as all risk variables present persistence from one year to the next. Our findings suggest that the type of bank specialization matters for the effect of diversifying revenue sources.