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Deposit-lending synergies and bank profitability

Author

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  • Bruno R. Arthur

    (The University of Texas Rio Grande Valley)

  • Monika K. Rabarison

    (The University of Texas Rio Grande Valley)

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.

Suggested Citation

  • Bruno R. Arthur & Monika K. Rabarison, 2018. "Deposit-lending synergies and bank profitability," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(4), pages 710-726, October.
    • Handle: RePEc:spr:jecfin:v:42:y:2018:i:4:d:10.1007_s12197-017-9414-x
    DOI: 10.1007/s12197-017-9414-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank profitability; Deposits; Loan commitments; Financial crises;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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