The Organization of Bank Affiliates; A Theoretical Perspective on Risk and Efficiency
AbstractWe analyze theoretically banks choice of organization and leverage in branches or subsidiaries in the presence of organizational and financial synergies, government bailouts, bankruptcy costs and varying correlations between risk-factors. The social efficiency of banks’ choices are analyzed as well taking into account operational synergies and distortions caused by banks’ exploitation of benefits of limited liability if there is a probability of governments bail-out. Leverage choice can be viewed as a trade-off between expected benefits of limited liability and bankruptcy costs. The choice of subsidiary vs branch organization can be viewed as a trade-off between organizational synergies and bankruptcy costs and this tradeoff depends on other factors mentioned. The theoretical and numerical analysis has a number of policy implications. We emphasize the role of capital requirements, explicit and implicit protection of banks’ creditors, restrictions on organizational choice with different synergies, insolvency procedures for banks affecting private and social costs associated with a bank’s insolvency
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Bibliographic InfoPaper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 06-2013.
Length: 42 pages
Date of creation: May 2013
Date of revision:
bank subsidiaries; bank branches;
Other versions of this item:
- Elisa Luciano & Clas Wihlborg, 2013. "The Organization of Bank Affiliates; A Theoretical Perspective on Risk and Efficiency," Carlo Alberto Notebooks 322, Collegio Carlo Alberto.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-25 (All new papers)
- NEP-BAN-2013-09-25 (Banking)
- NEP-LAM-2013-09-25 (Central & South America)
- NEP-LTV-2013-09-25 (Unemployment, Inequality & Poverty)
- NEP-NEU-2013-09-25 (Neuroeconomics)
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