On the Independence of Assets and Liabilities: Evidence from U.S. Commercial Banks, 1990-2005

49 Pages Posted: 29 Apr 2009

See all articles by Robert DeYoung

Robert DeYoung

University of Kansas School of Business

Chiwon Yom

Federal Deposit Insurance Corporation (FDIC)

Date Written: March 1, 2008

Abstract

Traditional asset-liability management techniques limit banks' abilities to structure their balance sheets-but more recently, financial innovations have allowed banks the chance to manage interest rate risk without constraining their asset-liability choices. Using canonical correlation analysis, we examine how the relationships between asset and liability accounts at U.S. commercial banks changed between 1990 and 2005. Importantly, we show that asset-liability linkages are weaker for banks that are intensive users of risk-mitigation strategies such as interest rate swaps and adjustable loans. Perhaps surprisingly, we find that asset-liability linkages are stronger at large banks than at small banks, although these size-based differences have diminished over time, both because of increased asset-liability linkages at small banks and decreased linkages at large banks.

Keywords: asset-liability management, canonical correlation, commercial banks, deregulation, technological change

JEL Classification: G21, G32

Suggested Citation

DeYoung, Robert and Yom, Chiwon, On the Independence of Assets and Liabilities: Evidence from U.S. Commercial Banks, 1990-2005 (March 1, 2008). Available at SSRN: https://ssrn.com/abstract=1396719 or http://dx.doi.org/10.2139/ssrn.1396719

Robert DeYoung (Contact Author)

University of Kansas School of Business ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
785-864-1806 (Phone)

Chiwon Yom

Federal Deposit Insurance Corporation (FDIC) ( email )

Washington, DC 20429
United States

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