Bank Liability Structure
Event details
| Date | 04.12.2015 |
| Hour | 10:30 › 12:00 |
| Speaker | Suresh SUNDARESAN (Columbia Business School) |
| Location | |
| Category | Conferences - Seminars |
We develop, and solve analytically, a dynamic model of optimal bank liability structure that incorporates bank run, regulatory closure, endogenous default, and endogenous deposit-insurance premium. Value maximizing banks choose the ratio of deposits to subordinated debt so that endogenous default coincides with bank closure. Banks’ optimal response to regulatory changes often counteracts regulators’ objective in reducing bank failures. For example, the optimal response to the introduction of FDIC is to increase leverage by choosing a higher deposit ratio and a lower subordinated-debt ratio. We also find that banks’ optimal leverage can be substantial even in the absence of material tax benefits.
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