Interest Rates Uncertainty, Immediacy Cost and the Role of Banks

Shamshubaridah Ramlee () and Nor Azlan Ghazali
Additional contact information
Shamshubaridah Ramlee: Faculty of Economics and Business, Universiti Kebangsaan Malaysia, 43600 Bangi, Selangor, Malaysia
Nor Azlan Ghazali: Faculty of Economics and Business, Universiti Kebangsaan Malaysia, 43600 Bangi, Selangor, Malaysia

Asian Academy of Management Journal of Accounting and Finance (AAMJAF), 2006, vol. 2, issue 2, 61-74

Abstract: This study developed the Role of Banks Index (RBX) to characterize the role of banks in delivering its services in an uncertain interest rate and immediate fund requirement environment. We extend the model developed by Ramlee (2001) and Deshmukh, Greenbaum, and Kanatas (1983) by incorporating an element of immediacy costs. The basis of the immediacy cost is in the manner a bank stock up funds as inventory to cater for a loan commitment made to its customer. The strategy adopted in the pooling of funds acts as a penalty cost for borrowing in the last minute. RBX characterizes a banking firm with two possible roles: being a broker when the RBX moved towards 1 and an asset transformer when the RBX moved towards 0. The study successfully operationalized the developed RBX by using a monthly three months KLIBOR rate as a proxy of the uncertain interest rates environment and λ, as the proxy for immediacy costs for the period of 1982 to 2005. We showed that banks act as an asset transformer in an uncertain interest rate and high immediacy costs environment but more as a broker in a stable environment.

Keywords: asset transformer; broker; immediacy costs; Role of Bank Index (RBX); loan commitment; uncertain interest rate (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations:

Downloads: (external link)
http://web.usm.my/journal/aamjaf/vol2-2/2-2-4.pdfFile-Format:Application/pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:usm:journl:aamjaf00202_61-74

Access Statistics for this article

More articles in Asian Academy of Management Journal of Accounting and Finance (AAMJAF) from Penerbit Universiti Sains Malaysia Contact information at EDIRC.
Bibliographic data for series maintained by Journal Division, Penerbit Universiti Sains Malaysia ().