Cross-Border Lending, Government Capital Injection, and Bank Performance

Jyh-Horng Lin, Pei-Chi Lii, Fu-Wei Huang and Shi Chen
Additional contact information
Jyh-Horng Lin: Department of International Business, Tamkang University, New Taipei City 25137, Taiwan
Pei-Chi Lii: Department of Management Sciences, Tamkang University, New Taipei City 25137, Taiwan
Fu-Wei Huang: Department of Management Sciences, Tamkang University, New Taipei City 25137, Taiwan
Shi Chen: School of Economics, Southwestern University of Finance and Economics, Chengdu 611130, China

IJFS, 2019, vol. 7, issue 2, 1-20

Abstract: In this paper, we develop a contingent claim model to examine the optimal bank interest margin, i.e., the spread between the domestic loan rate and the deposit market rate of an international bank in distress. The framework is used to evaluate the cross-border lending efficiency for a bank that participates in a government capital injection program, a government intervention used in response to the 2008 financial crisis. This paper suggests that government capital injection is an appropriate way to recapitalize the distressed bank, enhancing the bank interest margin and survival probability. Nevertheless, the government capital injection lacks efficiency when the bank’s cross-border lending is high. Stringent capital regulation, suggested to prevent future crises by literature, leads to superior lending efficiency when the government capital injection is low.

Keywords: cross-border lending; bank interest margin; government capital injection; barrier option (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2227-7072/7/2/21/pdf (application/pdf)
https://www.mdpi.com/2227-7072/7/2/21/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jijfss:v:7:y:2019:i:2:p:21-:d:221180

Access Statistics for this article

IJFS is currently edited by Ms. Hannah Lu

More articles in IJFS from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().