Working Paper

Regulatory taxes, investment, and financing decision for insured banks

Abstract: An investigation of the effects of interest rate and credit risk on optimal capital structure and investment decisions. The authors show that with no uncertainty in interest rates, capital regulation will reduce the risk of the bank's assets, but that under interest rate uncertainty, the impact of regulation may be detrimental and raise the risk of the deposits as well as government subsidies to the bank's shareholders.

Keywords: Bank capital; Deposit insurance;

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 1993

Number: 9303