The Cross Section of Bank Value

Working Paper No. 23291 We study the determinants of value creation within U.S. commercial banks. We focus on three theoretically-motivated drivers of bank value: screening and monitoring, "safe" deposit production, and synergies between deposit-taking and lending. To assess the relative c...

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Bibliographic Details
Published inNBER Working Paper Series p. 23291
Main Authors Egan, Mark, Lewellen, Stefan, Sunderam, Adi
Format Paper
LanguageEnglish
Published Cambridge National Bureau of Economic Research, Inc 01.03.2017
Subjects
Balance sheets
Banking industry
Banks
Business models
Business schools
Commercial banks
Economic theory
Liability
Loans
Productivity
Standard deviation
Value creation
United States > US
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Summary:Working Paper No. 23291 We study the determinants of value creation within U.S. commercial banks. We focus on three theoretically-motivated drivers of bank value: screening and monitoring, "safe" deposit production, and synergies between deposit-taking and lending. To assess the relative contributions of each, we develop novel measures of banks' deposit productivity and asset productivity and use these measures to evaluate the cross-section of bank value. We find that variation in deposit productivity explains the majority of variation in bank value, consistent with theories emphasizing safe-asset production. We also find evidence of meaningful value creation from synergies between deposit-taking and lending. Overall, our findings suggest that banks are primarily "special" due to their unique liability structure rather than their ability to screen and monitor borrowers.
ISSN:0898-2937
DOI:10.3386/w23291