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Deposits and Bank Capital Structure

Franklin Allen, Elena Carletti () and Robert Marquez
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Franklin Allen: University of PA

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

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 may no longer use capital when they lend to firms rather than invest directly in risky assets. This depends on whether the firms are public and compete with banks for equity capital, or private with exogenous amounts of capital.

JEL-codes: G21 G32 G33 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-ger
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Related works:
Journal Article: Deposits and bank capital structure (2015) Downloads
Chapter: Deposits and Bank Capital Structure (2013)
Working Paper: Deposits and Bank Capital Structure (2013) Downloads
Working Paper: Deposits and Bank Capital Structure (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:14-08

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