Deposit-Lending Synergies and Bank Profitability
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.
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
J Econ Finan