nep-cfn New Economics Papers
on Corporate Finance
Issue of 2009‒03‒22
one paper chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Bank Capital Requirements and Capital Structure By John P. Harding; Xiaozhong Liang; Stephen L. Ross

  1. By: John P. Harding (University of Connecticut); Xiaozhong Liang (State Street Corporation); Stephen L. Ross (University of Connecticut)
    Abstract: This paper studies the impact of capital requirements, deposit insurance and tax benefits 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 tax advantaged debt (a source of 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.
    Keywords: Banks, Capital Structure, Capital Regulation, Financial Intermediation, Leverage, GSE, Investment Banks
    JEL: G21 G28 G32 G38
    Date: 2009–02

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