An Empirical Investigation of Asset-Liability Management of Small Us Commercial Banks

Applied Financial Economics, 7, 1997, 525-536

Posted: 16 Mar 2015

See all articles by Van Son Lai

Van Son Lai

Université Laval

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Date Written: 1997

Abstract

A simultaneous equation model is developed that jointly determines net interest margin and various maturity gaps. Using annual data for the majority of the population of insured commercial banks, this model is estimated for the years 1984 to 1987 (the only years for which repricing data were collected). For banks with assets of less than $300 million, it is found that net interest margin is significantly associated with various maturity gaps. This framework is highly relevant to thousands of small banks for which accounting flows (such as net interest income) are the primary indicators of the effectiveness of asset liability management. One policy implication of this study is that the Federal Reserve may resume collecting repricing data (its collection was discontinued after 1987), at least for small banks with assets less than $300 million because repricing data reveals important information about small banks’ exposure to interest rate risk, and these banks are less subject to market discipline.

Suggested Citation

Lai, Van Son and Hassan, M. Kabir, An Empirical Investigation of Asset-Liability Management of Small Us Commercial Banks (1997). Applied Financial Economics, 7, 1997, 525-536, Available at SSRN: https://ssrn.com/abstract=2578428

Van Son Lai (Contact Author)

Université Laval ( email )

FSA ULaval
Quebec G1V 0A6
Canada
418-656-2131, x3943 (Phone)

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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