We decompose bank activities into passive and active components and evaluate the performance of the active components of the bank business model by controlling for passive maturity transformation strategies that can be executed in the capital market. Over the period 1960-2016, we find that (1) unlevered bank assets underperform passive portfolios of maturity-matched U.S. Treasury bonds; (2) the cost of bank deposits exceeds the cost of bank debt; (3) bank equities have CAPM betas near one, while passive maturity transformation strategies have CAPM betas near zero; and (4) portfolios of bank equities consistently underperform portfolios designed to passively mimic their economic exposures. The very strong investment performance of passive maturity transformation strategies over this period may mask the underperformance of the specialized bank activities.
- Faculty
- Publications
- Postdoctoral Scholars
-
Research Labs & Initiatives
- Cities, Housing & Society Lab
- Corporate Governance Research Initiative
- Corporations and Society Initiative
- Golub Capital Social Impact Lab
- Initiative for Financial Decision-Making
- Policy and Innovation Initiative
- Rapid Decarbonization Initiative
- Value Chain Innovation Initiative
- Venture Capital Initiative
- Behavioral Lab
- Data, Analytics & Research Computing