We develop a general equilibrium theory of the capital structures of banks and firms. The liquidity services of bank deposits make deposits a “cheaper” source of funding than equity. Banks pass on part of this funding advantage in the form of lower interest rates to firms that borrow from them. Firms and banks choose their capital structures to balance the funding of debt against the risk of co...

The subject of government bank regulation is intimately intertwined with that of government deposit insurance. If the government is to insure bank deposits, it should also have some say in the risks that insured banks are allowed to take, otherwise it would leave itself wide open to unlimited potential losses. John H. Kareken (in this issue) comes close to arguing that banks without government ...

In this paper we relate a bank’s choice between retail and wholesale liabilities to real economic uncertainty and the resulting volatility of bank loan volumes. We argue that since the volume of retail deposits is slow and costly to adjust to shocks in the volume of bank assets, banks facing more intense uncertainty and more volatile loan demand tend to employ more wholesale liabilities rather ...

We analyze optimal risk management strategies of a bank financed with deposits and equity in a one period model. The bank’s motivation for risk management comes from deposits which can lead to bank runs. In the event of such a run, liquidation costs arise. The hedging strategy that maximizes the value of equity is derived. We identify conditions under which well known results such as complete h...

When households increase their deposits in formal bank savings accounts, what is the source of the money? We combine high-frequency surveys with an experiment in which a Sri Lankan bank used mobile Point-of-Service (POS) terminals to collect deposits directly from households each week. We find that the headwaters of formal savings are in sacrificed leisure time: households work more, with evide...

The professional discussion divides itself into two broad categories. Macroeconomists typically are concerned with explaining business cycle fluctuations and determining when a recession will degenerate into a depression. 2 They are equally interested in the financial system's role as a propagator of this process because most depressions have been accompanied by serious disruptions in the finan...

The main purpose of this study is to develop a Fuzzy inference system to predict bank profitability in Iran and help investors in their investment decisions. For this purpose, the main effective variables on bank profitability, including facilities, deposits, manpower costs, and assets were recognized. In the next step, the data of 13 banks were collected from 2001 to 2011. The membership funct...

in the commercial banking activities, efficiency is an important issue for the bank managers, monitoring part and clients. this study has appraised the efficiency performance of the commercial banks in iran. the research method has been using windows data envelopment analysis with constant and variable returns to scale and input oriented model at the period of 1991-2006. the sample of study was...