Bank Value and Financial Fragility
AbstractWe propose a valuation model for a bank which faces a bankruptcy risk. Banks are identified with a possibly infinite random sequence of net benefits. A bank is solvent as long as its benefits remain non-negative. To preserve distressed banks from destruction, banks will be pooled within a financial coalition. When possible, those with current positive balance sheet will refinance those in need of liquidity. Banks are refinanced to the extent that their current needs for liquidity do not exceed their expected endogenous continuation value. This value itself is affected by future refinancing possibilities. We provide a recursive formula to compute this value when there is an aggregate liquidity constraint.
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Bibliographic InfoPaper provided by GREEN in its series Cahiers de recherche with number 0202.
Date of creation: 2002
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Other versions of this item:
- Gobert, Karine & Gonz�lez, Patrick & Poitevin, Michel, 2002. "Bank Value and Financial Fragility," Cahiers de recherche 0206, Université Laval - Département d'économique.
- Karine Gobert & Patrick González & Michel Poitevin & Alexandra Lai, 2002. "Bank Value and Financial Fragility," CIRANO Project Reports 2002rp-07, CIRANO.
- D46 - Microeconomics - - Market Structure and Pricing - - - Value Theory
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-08-17 (All new papers)
- NEP-MFD-2003-08-17 (Microfinance)
- NEP-PKE-2003-08-17 (Post Keynesian Economics)
- NEP-RMG-2003-08-17 (Risk Management)
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.:
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- Veronika Dolar & Césaire Meh, 2002. "Financial Structure and Economic Growth: A Non-Technical Survey," Working Papers 02-24, Bank of Canada.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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