Banks and other financial institutions raise hybrid capital as part of their risk capital. Hybrid capital has no maturity, but, similarily to most corporate debt, includes an embedded issuer's call option. To obtain acceptance as risk capital, the first possible exercise date of the embedded...

High bank leverage is commonly considered a major threat to financial stability. We build a structural credit model to calculate the optimal leverage for a bank that provides asset backed loans, such as corporate loans and mortgages. The bank's assets are loans, which means that the bank's...