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The Cross Section of Bank Value

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Listed:
  • Stefan Lewellen

    (London Business School)

  • Adi Sunderam

    (Harvard Business School)

  • Mark Egan

    (University of Minnesota Carlson School)

Abstract

We study the determinants of value creation within U.S. commercial banks. We begin by constructing two new measures of bank productivity: one focused on deposit-taking productivity and one focused on asset productivity. We then use these measures to evaluate the cross-section of bank value. Consistent with theories of safe-asset production, we find that variation in deposit productivity is responsible for the majority of variation in bank value. We also find evidence consistent with synergies between deposit-taking and lending activities: banks with high deposit productivity have high asset productivity, a relationship driven by the tendency of deposit-productive banks to hold illiquid loans. Our results suggest that both sides of the balance sheet contribute meaningfully to bank value creation, with the liability side playing a primary role.

Suggested Citation

  • Stefan Lewellen & Adi Sunderam & Mark Egan, 2017. "The Cross Section of Bank Value," 2017 Meeting Papers 1283, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1283
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    13. Joseph P. Hughes & Loretta J. Mester, 2018. "The Performance of Financial Institutions: Modeling, Evidence, and Some Policy Implications," Departmental Working Papers 201805, Rutgers University, Department of Economics.
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