Template-Type: ReDIF-Article 1.0
Author-Name:  Shamshubaridah Ramlee 
Author-Workplace-Name:  Faculty of Economics and Business, Universiti Kebangsaan Malaysia, 43600 Bangi, Selangor, Malaysia 
Author-Email:  nag@pkrisc.cc.ukm.my
Author-Name:  Nor Azlan Ghazali
Author-Workplace-Name: Faculty of Economics and Business, Universiti Kebangsaan Malaysia, 43600 Bangi, Selangor, Malaysia 
Title: Interest Rates Uncertainty, Immediacy Cost and the Role of Banks
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. 
Classification-JEL:
Keywords: asset transformer, broker, immediacy costs, Role of Bank Index (RBX), loan commitment, uncertain interest rate 
Journal: Asian Academy of Management Journal of Accounting and Finance
Pages: 61-74
Volume: 2
Issue: 2
Year: 2006
File-URL: http://web.usm.my/journal/aamjaf/vol 2-2/2-2-4.pdfFile-Format: Application/pdf
Handle: RePEc:usm:journl:aamjaf00202_61-74