Open Access
Deposits and bank capital structure
Loading...
Files
ECO_2013_03.pdf (500.24 KB)
2013/03
License
Access Rights
Cadmus Permanent Link
Full-text via DOI
ISBN
ISSN
1725-6704
Issue Date
Type of Publication
LC Subject Heading
Other Topic(s)
EUI Research Cluster(s)
Initial version
Published version
Succeeding version
Preceding version
Published version part
Earlier different version
Initial format
Author(s)
Citation
EUI ECO; 2013/03
Cite
ALLEN, Franklin, CARLETTI, Elena, Deposits and bank capital structure, EUI ECO, 2013/03 - https://hdl.handle.net/1814/26454
Abstract
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.