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Journal of Economics and Finance

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30-10-2017

Deposit-lending synergies and bank profitability

Authors: Bruno R. Arthur, Monika K. Rabarison

Published in: Journal of Economics and Finance | Issue 4/2018

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Abstract

Banks accept deposits and often lend via commitments. It has been shown that there are synergies between transaction deposits and loan commitments; and that the volatility of bank stock returns declines when these two liquidity risks are taken together. We examine whether such deposit-lending synergies reflect on U.S. commercial bank profitability levels, and whether the synergies impact bank profitability levels differently around financial crises. Our results from panel regressions show that the deposit-lending synergies translate to increased profitability only for small publicly traded banks. However, pre-crisis deposit-lending synergies do not appear to lead to higher profitability during or after the crises.

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Off-balance sheet activities: https://www.fdic.gov/regulations/safety/manual/section3-8.pdf

Call reports are available at https://www.chicagofed.org/banking/financial-institution-rBeginning Maeports/commercial-bank-data

Beginning on March 31, 2011, the banks’ call reports are available from the FFIEC Central Data Repository’s Public Data Distribution at https://cdr.ffiec.gov/public/

Monthly federal funds rates are available on the website of the Board of Governors of the Federal Reserve System at http://www.federalreserve.gov

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As Holod and Peek (2007) suggest, scaling by assets allows a clearer interpretation of relative responses to changes.

Including or excluding unused credit card commitments lead to similar results in our study.

We reduce to 5 quarters the post-crisis period of the Russian debt /LCTM bailout crisis, as well as the pre-crisis period of the bursting of the dot.com bubble crisis to insure that these periods are not contaminated by crisis proximity.

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Title: Deposit-lending synergies and bank profitability
Authors: Bruno R. Arthur
Monika K. Rabarison
Publication date: 30-10-2017
Publisher: Springer US
Published in: Journal of Economics and Finance / Issue 4/2018
Print ISSN: 1055-0925
Electronic ISSN: 1938-9744
DOI: https://doi.org/10.1007/s12197-017-9414-x

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