Exchange Rate Volatility, Global Market Exposure and Operational Efficiency among US Commercial Banks

Abstract

This study investigates how specific macroeconomic conditions/variables influence operational efficiency dynamics among US Commercial banks at the aggregate level. Empirical approach adopted in this study examines both the short and long run effects of modeled explanatory variables on operational efficiency. Utilizing net interest margin as a proxy for operational efficiency among US commercial banks, short and long run effects of modeled macroeconomic conditions/variables on bank operational efficiency are estimated. Ensuing empirical results show that conditions such as macroeconomic uncertainty, exchange rate volatility, global market exposure etc. have significant and varying impact on operational efficiency among US commercial banks in both the short and the long run. For instance, this study finds that macroeconomic uncertainty has negative impact on operational efficiency among US commercial banks in the short run; the effect however, tends to dissipates in the long run. Test estimates further suggest that exchange rate volatility rather augments operational efficiency among these commercial banks in both the short and long run; whereas financial liberalization restricts growth in operational efficiency.