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Interest Rate Changes and Commercial Bank Revenues and Costs

  • Sherman J. Maisel
  • Robert Jacobson
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    This paper estimates statistical cost. and revenue curves for a cross-section of banks in the years 1962-75. The primary data cover reported accounting or book rates of return. Approximations are also made to estimate economic or total returns. These approximations take into account changes in capital values during the year as a result of movements in interest rates measured by market yields of government securities of the proper duration. Book rates of return and costs adjust towards each other so that marginal rates received or paid for different activities tend to equalize. On the other hand, the rates of adjustment are slow. While movements in the cost of demand and time deposits correlate well with changes in market rates, not all of the advantages of interest rate ceilings are given up to depositors. Movements in interest rates cause sharp fluctuations in total returns. These movements are sharp enough so that in several years economic losses occurred rather than reported book profits. Furthermore, over this period the net economic returns of classes of assets were poorly correlated with their risks (their variance of returns).

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    File URL: http://www.nber.org/papers/w0267.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0267.

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    Date of creation: Jul 1978
    Date of revision:
    Publication status: published as JFQA, Vol. 13, no. 4 (1978): 687-700.
    Handle: RePEc:nbr:nberwo:0267
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.orgEmail:


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    1. Boquist, John A & Racette, George A & Schlarbaum, Gary G, 1975. "Duration and Risk Assessment for Bonds and Common Stocks," Journal of Finance, American Finance Association, vol. 30(5), pages 1360-65, December.
    2. McCulloch, J Huston, 1975. "The Tax-Adjusted Yield Curve," Journal of Finance, American Finance Association, vol. 30(3), pages 811-30, June.
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