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A1033
Title: Assessing bank performance under volatile exchange rate Authors:  Mikhail Mamonov - CERGE-EI and CEBA (Czech Republic) [presenting]
Artem Prokhorov - The University of Sydney (Austria)
Christopher Parmeter - University of Miami (United States)
Abstract: The impact of currency fluctuations on bank performance when banks have non-trivial exposures to foreign currencies is studied. We use unique data on Russian banks between 2004 and 2020 to document that cost efficiency estimates are both downward biased and not rank preserving when these fluctuations are ignored. We find that the Demsetz efficient structure hypothesis holds only when currency fluctuations are accounted for. To ensure generalizability, we also perform a counterfactual exercise which does not rely on our unique bank-level data but rather employs banks' exposures to foreign currencies and nominal exchange rate volatility.