Bank Capital Requirements, Capital Structure and Regulation

John Harding (), Xiaozhong Liang () and Stephen Ross

Journal of Financial Services Research, 2013, vol. 43, issue 2, 127-148

Abstract: This paper studies the impact of capital requirements, deposit insurance and franchise value on a bank’s capital structure. We find that properly regulated banks voluntarily choose to maintain capital in excess of the minimum required. Central to this decision is both firm franchise value and the ability of regulators to place banks in receivership stripping equity holders of firm value. These features of our model help explain both the capital structure of the large mortgage Government Sponsored Enterprises and the recent increase in risk taking through leverage by financial institutions. The insights gained from the model are useful in guiding the discussion of financial regulatory reforms. Copyright Springer Science+Business Media, LLC 2013

Keywords: Banks; Capital Structure; Capital Regulation; Financial Intermediation; Leverage; GSE; Investment Banks; G21; G28; G32; G38; M48 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (15)

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DOI: 10.1007/s10693-011-0127-6

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