The main purpose of this paper is to model bank spread behavior under capital regulation and deposit insurance. Comparative static results show that an increase in the capital-to-deposits ratio or the deposit insurance decreases the bank's interest margin or spread. It is also shown that an...

The banking industry is experiencing a renewed focus on retail banking, a trend often attributed to the stability and profitability of retail activities. This article examines the impact of retail banking on performance by liquidity providing and branch network strategies. Our findings suggest...

Since banks often lend via commitments, their lending and deposit-taking may be two manifestations of one primitive function: the provision of liquidity on demand. We explore this function under a cap-based valuation. We find that (i) the strike price of the cap-based valuation increases the...

This paper proposes a framework for bank equity valuation based on a path-dependent, barrier option model. A direct implication of this framework is that bank equity will be priced as a down-and-out call option. Using this approach, we examine how bank interest margin, i.e., the spread between...

This article proposes a framework for bank default risk measure under government capital injection explicitly coinciding with an adverse signal that a rescued bank is expected to have significant future losses. A bank facing a serious problem of early closure may have a strong incentive to...

This article extends the framework of Merton (1974) with Vassalou and Xing (2004) to value a troubled but solvent bank's equity by explicitly incorporating distressed assets purchased by the government in an imperfectly competitive loan market. We show that the bank may be willing to take this...

Previous research on market-based evaluation of bank equity with government bailout has modelled the bank as a corporate firm with risky assets and liabilities. No attempt was made to analyse explicitly equity quality expressed as a situation when the carrying value of the bank's equity book is...

For ideal particles in a finite multilayer system with free boundary conditions and a hopping amplitude, t, between neighbouring layers, we calculate the temperature dependence of the specific heat and the magnetic susceptibility. In spite of the fact that the excitation gap in the discrete...

Purpose: The purpose of this paper is to develop a capped barrier option framework to consider the politically preferential treatment for bank loans incentivized by government capital injections and calculate loan-risk sensitive insurance premiums. Design/methodology/approach: This paper takes...

Purpose: This paper aims to theoretically examine the effects of regulatory policyholder protection on spread behavior and default probability of a life insurance company. Design/methodology/approach: The authors construct a contingent claim model for the valuation of the equity of a life...