EconPapers    
Economics at your fingertips  
 

Bank funding costs and capital structure

Andrew Gimber () and Aniruddha Rajan ()
Additional contact information
Aniruddha Rajan: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 805, Bank of England working papers from Bank of England

Abstract: If bail-in is credible, risk premia on bank securities should decrease as funding sources junior to and alongside them in the creditor hierarchy increase. Other things equal, we find that when banks have more equity and less subordinated debt they have lower risk premia on both. When banks have more subordinated and less senior unsecured debt, senior unsecured risk premia are lower. For percentage point changes to an average balance sheet, these reductions would offset about two thirds of the higher cost of equity relative to subordinated debt and one third of the spread between subordinated and senior unsecured debt.

Keywords: Funding costs; weighted average cost of capital; capital structure; creditor hierarchy; loss‑absorbing capacity; Modigliani–Miller offset; contingent claims analysis. (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-cfn
Date: 2019-06-21
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... apital-structure.pdf Full text (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: https://EconPapers.repec.org/RePEc:boe:boeewp:0805

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().

 
Page updated 2019-12-08
Handle: RePEc:boe:boeewp:0805