Performance uncertainty, liquidity risk and the macroeconomy: perspective on US commercial banks

Purpose The study aims to review the impact of liquidity vulnerabilities, internal resilience, exposure to loan losses, and macroeconomic dynamics on performance uncertainty among US commercial banks. Design/methodology/approach The data for empirical inquiry were analyzed using the two-step system GMM panel estimation technique. Further empirical analyses were performed using the dynamic panel threshold model propounded by Seo et al. (2019) to verify the existence of non-linear threshold effects or otherwise for surmised study interactions. Findings The results suggest that worsening liquidity position and exposure to loan losses among US commercial banks contribute significantly to performance uncertainty. Internal resilience, however, is found to lessen or reduce performance uncertainty among commercial banks. The findings suggest that improved or strengthened internal banking dynamics, because of appreciable growth in deposits, asset growth, and healthy liquidity reserves, tend to minimize volatility associated with US commercial bank performance. Finally, this study found that although internal resilience is critical in dampening volatility associated with commercial bank performance, the conclusion is feasible for commercial banks characterized by yield on assets equal to or more than 4.5% and 3.6%, respectively, for the two volatility performance measures used in the study. Originality/value The contributions and significance of this study stem from the unique approach adopted. The approach adopted in this study differs significantly from related studies in terms of the methodology used, the nature of interactions examined, and the core variables featured in the examination of the prime objectives of the study.