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Dynamic modelling of bank profits

Listed author(s):
  • J. Mukuddem-Petersen
  • M. A. Petersen
  • I. M. Schoeman
  • B. A. Tau
Registered author(s):

    A topical issue in financial economics is the development of a stochastic dynamic model for bank behaviour. Under the assumption that the loan market is imperfectly competitive, we investigate the evolution of banking items such as loans, provisions for loan losses and deposit withdrawals, Treasuries and deposits and their relationship with profit. A motivation for studying this type of problem is the need to generalize the more traditional discrete-time models that are being used in the majority of studies that analyse banks and their operational idiosyncracies. An important outcome of our research is an explicit model for bank profit based solely on the stochastic dynamics of bank assets (loans, Treasuries and reserves) and liabilities (deposits). By way of conclusion, we provide a brief discussion of some of the economic aspects of the dynamic bank modelling undertaken in the main body of the article.

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    Article provided by Taylor and Francis Journals in its journal Applied Financial Economics Letters.

    Volume (Year): 4 (2008)
    Issue (Month): 3 ()
    Pages: 157-161

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    Handle: RePEc:taf:apfelt:v:4:y:2008:i:3:p:157-161
    DOI: 10.1080/17446540701630056
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    1. Repullo, Rafael, 2004. "Capital requirements, market power, and risk-taking in banking," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 156-182, April.
    2. Hackbarth, Dirk & Miao, Jianjun & Morellec, Erwan, 2006. "Capital structure, credit risk, and macroeconomic conditions," Journal of Financial Economics, Elsevier, vol. 82(3), pages 519-550, December.
    3. Andrea Gheno, 2007. "Corporate valuations and the Merton model," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(1), pages 47-50, January.
    4. Luis M. Granero & Juan Carlos Reboredo, 2005. "Competition, risk taking, and governance structures in retail banking," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(1), pages 37-40, January.
    5. G. E. Halkos & M. N. Georgiou, 2005. "Bank sales, spread and profitability: an empirical analysis," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(5), pages 293-296, September.
    6. Rochet, Jean-Charles, 1992. "Capital requirements and the behaviour of commercial banks," European Economic Review, Elsevier, vol. 36(5), pages 1137-1170, June.
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