Federal Dposit InsuranceCorporation• Center for Financial Researchh
Sanjiv R. Das
Darrell Duffie
Nikunj Kapadia
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
FDIC Center for Financial Research
Working Paper
No. 2008-05
On the Independence of Assets and Liabilities:
Evidence from U.S. Commercial Banks, 1990 -2005
March 2008
Empirical Comparisons and Implied Recovery Rates
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An Empirical
An Empirical Analysis
State-
Efraim Benmel Efraim Benmelech May, 2005
June 20
May , 2005 Asset S2005-14
September 2005
Sanjiv R. Das
Darrell Duffie
Nikunj Kapadia
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
FDIC Center for Financial Research
Working Paper
No. 2008-05
On the Independence of Assets and Liabilities:
Evidence from U.S. Commercial Banks, 1990 -2005
March 2008
Empirical Comparisons and Implied Recovery Rates
kkk
An Empirical
An Empirical Analysis
State-
Efraim Benmel Efraim Benmelech May, 2005
June 20
May , 2005 Asset S2005-14
September 2005
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On the Independence of Assets and Liabilities:
Evidence from U.S. Commercial Banks, 1990-2005*
Robert DeYoung**
Capitol Federal Professor in Financial Institutions and Markets
University of Kansas
Lawrence, KS 66045 USA
Chiwon Yom**
Federal Deposit Insurance Corporation
Washington, DC 20219 USA
March 20, 2008
Abstract: Traditional asset-liability management techniques limit banks’ abilities to structure their
balance sheets—but more recently, financial innova tions 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.
Key words: asset-liability management, canonical corre lation, commercial banks, deregulation,
technological change.
JEL codes: G21, G32
* Forthcoming in Journal of Financial Stability.
** The views in this paper are those of the authors and do not necessarily reflect the views of the Federal
Deposit Insurance Corporation. The authors have received helpful comments from seminar participants at
the Bank of Finland/Journal of Financial Stability conference in Helskinki and session participants at the
Western Economics Association meeting in Seattle . DeYoung is the corresponding author: Summerfield
Hall, 1300 Sunnyside Avenue, Lawrence, KS 66045. Phone: 785-864-1806. Email: rdeyoung@ku.edu.
Evidence from U.S. Commercial Banks, 1990-2005*
Robert DeYoung**
Capitol Federal Professor in Financial Institutions and Markets
University of Kansas
Lawrence, KS 66045 USA
Chiwon Yom**
Federal Deposit Insurance Corporation
Washington, DC 20219 USA
March 20, 2008
Abstract: Traditional asset-liability management techniques limit banks’ abilities to structure their
balance sheets—but more recently, financial innova tions 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.
Key words: asset-liability management, canonical corre lation, commercial banks, deregulation,
technological change.
JEL codes: G21, G32
* Forthcoming in Journal of Financial Stability.
** The views in this paper are those of the authors and do not necessarily reflect the views of the Federal
Deposit Insurance Corporation. The authors have received helpful comments from seminar participants at
the Bank of Finland/Journal of Financial Stability conference in Helskinki and session participants at the
Western Economics Association meeting in Seattle . DeYoung is the corresponding author: Summerfield
Hall, 1300 Sunnyside Avenue, Lawrence, KS 66045. Phone: 785-864-1806. Email: rdeyoung@ku.edu.