Bank Efficiency and the Bond Markets: Evidence from the Asia and Pacific Region
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This paper examines the association between bond market development and profit and cost efficiency of commercial banks, based on bank-level data from 27 economies in the Asia and Pacific region.
The study finds that bond market size and structure are relevant to bank efficiency. A larger bond market is generally associated with higher profit efficiency and lower cost efficiency of commercial banks. Given bond market size, a larger share of corporate bonds will enhance both bank profit and cost efficiency. The policy implications of this paper are that balanced and well-developed capital markets will benefit banking sector operations.