Three essays on commercial bank management and its impact on local economy

The dissertation consists of three essays on commercial bank management and its impact on local economy. The first chapter is to understand bank liquidity management. In this paper, we test whether and how U.S. commercial banks actively managed their liquidity positions between 1992 and 2012, prior to the implementation of the Basel III liquidity rules. On average, the data are consistent with a liquidity management regime in which banks targeted the traditional loans-to-core deposits (LTCD) ratio. The data are also consistent on average with the net stable funding ratio (NSFR), a regulatory liquidity ratio that was not formally introduced by the Bank for International Settlements until 2010. We find evidence of LTCD and (implicit) NSFR targeting at banks of all sizes, but concordance is strongest for small banks and weakest for so-called SIFI banks. The second chapter focuses on bank branch management and examines the purchase and sale of U.S. commercial bank branches between 1994 and 2010. Branches are transacted from large, less productive, or worse-capitalized banks to smaller, organizationally complex, efficient, or better-capitalized ones. Using an event study analysis, I find a statistically and economically significant increase in firm value for both branch-selling banks and branch-buying banks. These valuation effects are driven by a faster growth in loans production and a smooth transfer of purchased deposits at the branch purchasers and by an improved short-run operating performance and no significant decrease in loans and deposits growth rates at the branch sellers. The final chapter investigates whether an increase in the supply of bank credit for small firms in a local economy impacts job growth. Using county-level data on small business loan originations between 1996 and 2004 and employing three instrumental variables for the new loans to ensure that this is a loan supply effect, I estimate credit elasticity of job creation of 0.16, and interpret this as evidence that small firms' access to bank finance generates a positive externality of local job creation. Further, my results suggest that small-firm financial constraints can stifle economic growth: (1) the estimated elasticity is larger in the presence of exogenous local growth opportunities and (2) the economic magnitude of credit elasticity decreases with respect to firm size.