The Financial Capital Constraint and the Valuation of Commercial Banking Activity

John M. Hartwick

No 940, Working Papers from Queen's University, Department of Economics

Abstract: Equity capital makes the value of liabilities equal the value of assets in a commercial bank's balance sheet. This fact makes valuation of banking activity straightforward. The cost of shareholder risk-bearing becomes a natural entry into the cost side of value-added. Expected losses from lending become an entry in value-added and this leads to the concept of ex ante and ex post value-added. A model of a profit-maximizing bank is set out and the role of homogeneity in the production functions turns out to be crucial in defining inputs and output. The implicit price of deposit capital is analyzed, including the question of whether deposits are a "cheap" source of funds to the bank.

Date: 1996-11

Downloads: (external link)
http://www.econ.queensu.ca/working_papers/papers/qed_wp_940.pdf First version 1996 (application/pdf)

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: http://EconPapers.repec.org/RePEc:qed:wpaper:940

Access Statistics for this paper

More papers in Working Papers from Queen's University, Department of Economics
Contact information at EDIRC.
Series data maintained by Mark Babcock ().