Deposits and bank capital structure

Franklin Allen, Elena Carletti () and Robert Marquez

Journal of Financial Economics, 2015, vol. 118, issue 3, 601-619

Abstract: 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 could no longer use capital when they lend to firms instead of investing directly in risky assets. This depends on whether the firms are public and compete with banks for equity capital or are private with exogenous amounts of capital.

Keywords: Deposit finance; Bankruptcy costs; Regulation (search for similar items in EconPapers)
JEL-codes: G21 G32 G33 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (78)

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Related works:
Working Paper: Deposits and Bank Capital Structure (2014)
Chapter: Deposits and Bank Capital Structure (2013)
Working Paper: Deposits and Bank Capital Structure (2013)
Working Paper: Deposits and Bank Capital Structure (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:118:y:2015:i:3:p:601-619

DOI: 10.1016/j.jfineco.2014.11.003

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