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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Notes
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
Employment data are from the website of the Bureau of Labor Statistics at http://www.bls.gov
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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Arthur, B.R., Rabarison, M.K. Deposit-lending synergies and bank profitability. J Econ Finan 42, 710–726 (2018). https://doi.org/10.1007/s12197-017-9414-x
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DOI: https://doi.org/10.1007/s12197-017-9414-x