Date: 2015
Type: Article
Deposits and bank capital structure
Journal of financial economics, 2015, Vol. 18, No. 3, pp. 601-619
ALLEN, Franklin, CARLETTI, Elena, QIAN, Jun, VALENZUELA, Patricio, Deposits and bank capital structure, Journal of financial economics, 2015, Vol. 18, No. 3, pp. 601-619
- https://hdl.handle.net/1814/39618
Retrieved from Cadmus, EUI Research Repository
In a model with bankruptcy costs and segmented deposit and equity markets, we endogenize the cost of equity and deposit finance for banks. Despite risk neutrality, equity capital earns a higher expected return than direct investment in risky assets. Banks hold positive capital to reduce bankruptcy costs, but there is a role for capital regulation when deposits are insured. Banks may no longer use capital when they lend to firms rather than invest directly in risky assets. This depends on whether the firms are public and compete with banks for equity capital, or private with exogenous amounts of capital.
Additional information:
Published online: 20 November 2014
Cadmus permanent link: https://hdl.handle.net/1814/39618
Full-text via DOI: 10.1016/j.jfineco.2014.11.003
ISSN: 0304-405X
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