Deposits and Bank Capital Structure
In a model with bankruptcy costs and segmented deposit and equity markets, we endogenize the choice of bank and firm capital structure and the cost of equity and deposit finance. Despite risk neutrality, equity capital is more costly than deposits. When banks directly finance risky investments, they hold positive capital and diversify. When they make risky loans to firms, banks trade off the high cost of equity with the diversification benefits from a lower bankruptcy probability. When bankruptcy costs are high, banks use no capital and only lend to one sector. When these are low, banks hold capital and diversify. JEL Codes: G21, G32, G33 Keywords: Deposit finance, bankruptcy costs, bank diversification
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: via Rontgen, 1 - 20136 Milano (Italy)|
Web page: http://www.igier.unibocconi.it/
|Order Information:|| Web: http://www.igier.unibocconi.it/en/papers/index.htm Email: |
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.:
- Luigi Guiso & Paolo Sodini, 2012.
"Household Finance. An Emerging Field,"
EIEF Working Papers Series
1204, Einaudi Institute for Economics and Finance (EIEF), revised Mar 2012.
- Allen N. Berger & Richard J. Herring & Giorgio P. Szego, 1995.
"The role of capital in financial institutions,"
Finance and Economics Discussion Series
95-23, Board of Governors of the Federal Reserve System (U.S.).
- Viral V. Acharya & Hamid Mehran & Anjan V. Thakor, 2010.
"Caught between Scylla and Charybdis? Regulating bank leverage when there is rent seeking and risk shifting,"
1024, Federal Reserve Bank of Cleveland.
- Acharya, Viral V & Mehran, Hamid & Thakor, Anjan, 2012. "Caught between Scylla and Charybdis? Regulating bank leverage when there is rent-seeking and risk-shifting," CEPR Discussion Papers 8822, C.E.P.R. Discussion Papers.
- Viral V. Acharya & Hamid Mehran & Anjan V. Thakor, 2010. "Caught between Scylla and Charybdis? Regulating bank leverage when there is rent seeking and risk shifting," Staff Reports 469, Federal Reserve Bank of New York.
- Dell'Ariccia, Giovanni, 2001. "Asymmetric information and the structure of the banking industry," European Economic Review, Elsevier, vol. 45(10), pages 1957-1980, December.
- Lucy White & Alan D. Morrison, 2002.
"Crises and Capital Requirements in Banking,"
OFRC Working Papers Series
2002fe05, Oxford Financial Research Centre.
- Richard Brealey, 2006. "Basel II: The Route Ahead or Cul-de-Sac?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(4), pages 34-43.
- Heider, Florian & Gropp, Reint, 2008. "The Determinants of Capital Structure: Some Evidence from Banks," ZEW Discussion Papers 08-015, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Alan D. Morrison & Lucy White, 2005. "Crises and Capital Requirements in Banking," American Economic Review, American Economic Association, vol. 95(5), pages 1548-1572, December.
- James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, vol. 46(4), pages 1223-42, September.
- Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
- Gregor Andrade & Steven N. Kaplan, 1997.
"How Costly is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed,"
NBER Working Papers
6145, National Bureau of Economic Research, Inc.
- Gregor Andrade & Steven N. Kaplan, 1998. "How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed," Journal of Finance, American Finance Association, vol. 53(5), pages 1443-1493, October.
- Repullo, Rafael, 2004.
"Capital requirements, market power, and risk-taking in banking,"
Journal of Financial Intermediation,
Elsevier, vol. 13(2), pages 156-182, April.
- Repullo, Rafael, 2003. "Capital Requirements, Market Power and Risk-Taking in Banking," CEPR Discussion Papers 3721, C.E.P.R. Discussion Papers.
- Rafael Repullo, 2002. "Capital requirements, market power, and risk-taking in banking," Proceedings 809, Federal Reserve Bank of Chicago.
- Demirgüç-Kunt, A. & Beck, T.H.L. & Honohan, P., 2008. "Finance for all? : Policies and pitfalls in expanding access," Other publications TiSEM aec73d3a-d6eb-457f-9182-3, Tilburg University, School of Economics and Management.
- Fenghua Song & Anjan V. Thakor, 2007. "Relationship Banking, Fragility, and the Asset-Liability Matching Problem," Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 2129-2177, November.
When requesting a correction, please mention this item's handle: RePEc:igi:igierp:477. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.