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The changing role of banks and the changing value of deposit guarantees

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Author Info
Peter Ritchken
James Thomson
Ivilina Popova

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Abstract

Using a model for pricing deposit guarantees that treats the bank's investments as a portfolio of default-free bonds and risky loans, the authors push back uncertainty to the level of the borrowing firm and thus are able to explore how factors like firm leverage, loan maturity, and correlation effects between the firm's assets and interest rates affect the value of deposit guarantees.

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File URL: http://www.clevelandfed.org/Research/Workpaper/1995/wp9502.pdf
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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9502.

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Date of creation: 1995
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Handle: RePEc:fip:fedcwp:9502

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Keywords: Deposit insurance Bank loans

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. McCulloch, J. Huston, 1981. "Misintermediation and macroeconomic fluctuations," Journal of Monetary Economics, Elsevier, vol. 8(1), pages 103-115. [Downloadable!] (restricted)
  2. Robert C. Merton & Zvi Bodie, 1992. "On the Management of Financial Guarantees," Financial Management, Financial Management Association, vol. 21(4), Winter.
  3. Merton, Robert C, 1978. "On the Cost of Deposit Insurance When There Are Surveillance Costs," Journal of Business, University of Chicago Press, vol. 51(3), pages 439-52, July. [Downloadable!] (restricted)
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  4. Crouhy, Michel & Galai, Dan, 1991. "A contingent claim analysis of a regulated depository institution," Journal of Banking & Finance, Elsevier, vol. 15(1), pages 73-90, February. [Downloadable!] (restricted)
  5. Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January. [Downloadable!] (restricted)
  6. Ritchken, Peter & Thomson, James B. & DeGennaro, Ramon P. & Li, Anlong, 1993. "On flexibility, capital structure and investment decisions for the insured bank," Journal of Banking & Finance, Elsevier, vol. 17(6), pages 1133-1146, December. [Downloadable!] (restricted)
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  7. Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March. [Downloadable!] (restricted)
  8. Flannery, Mark J., 1989. "Capital regulation and insured banks choice of individual loan default risks," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 235-258, September. [Downloadable!] (restricted)
  9. John H. Boyd & Mark Gertler, 1994. "Are banks dead? or, are the reports greatly exaggerated?," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 85-117.
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  10. Anlong Li & Peter Ritchken & L. Sankarasubramanian & James B. Thomson, 1995. "Regulatory taxes, investment and financing decisions for insured banks," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 581-617.
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  11. Merton, Robert C., 1977. "An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 3-11, June. [Downloadable!] (restricted)
  12. Klaus Bjerre Toft., 1994. "Exact Formulas for Expected Hedging Error and Transactions Costs in Option Replication," Research Program in Finance Working Papers RPF-237, University of California at Berkeley.
  13. Mark D. Flood, 1990. "On the use of option pricing models to analyze deposit insurance," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 19-35. [Downloadable!]
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