Strategic Bank Liability Structure Under Capital Requirements
Banks strategically choose and dynamically restructure deposits and nondeposit debt in response to the minimum requirements on total capital and tangible equity. We derive the optimal strategic liability structure and show that it minimizes the protection for deposits conditional on capital requirem...
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| Veröffentlicht in: | Management science 2023-10, Vol.69 (10), p.6349-6368 |
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| creator | Sundaresan, Suresh M |
| description | Banks strategically choose and dynamically restructure deposits and nondeposit debt in response to the minimum requirements on total capital and tangible equity. We derive the optimal strategic liability structure and show that it minimizes the protection for deposits conditional on capital requirements. Although, given any liability structure, regulators can set capital requirements high enough to remove the incentive for risk substitution, the strategic response to the capital requirements always preserves this incentive. Banks reduce leverage but increase the proportion of nondeposit debt if regulations raise the capital requirements.
This paper was accepted by Lukas Schmid, finance.
Supplemental Material:
The online appendix and data are available at
https://doi.org/10.1287/mnsc.2022.4570
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| doi_str_mv | 10.1287/mnsc.2022.4570 |
| format | Article |
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This paper was accepted by Lukas Schmid, finance.
Supplemental Material:
The online appendix and data are available at
https://doi.org/10.1287/mnsc.2022.4570
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This paper was accepted by Lukas Schmid, finance.
Supplemental Material:
The online appendix and data are available at
https://doi.org/10.1287/mnsc.2022.4570
.</description><subject>bank leverage</subject><subject>bank regulation</subject><subject>Banking industry</subject><subject>capital requirement</subject><subject>Capital requirements</subject><subject>Capital structure</subject><subject>deposit insurance</subject><subject>Liability</subject><subject>liability structure</subject><subject>Regulation</subject><issn>0025-1909</issn><issn>1526-5501</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2023</creationdate><recordtype>article</recordtype><recordid>eNqFkD1PwzAQhi0EEqWwMltiTjg7dhwPDFDxJUVCAjpbjusgl8ZpbWfovydRkBiZbrjnfU_3IHRNICe0EredjyanQGnOuIATtCCclhnnQE7RAoDyjEiQ5-gixi0AiEqUC3T3kYJO9ssZ_KD9N66dbtzOpSMeF4NJQ7B47Tc24JXeu6R3-N0eBhdsZ32Kl-is1btor37nEq2fHj9XL1n99vy6uq8zU1CeMl02VAOVrDWMgWxLoTmXxBhNWcEsrQohtCS0aBuhm0pbKYwtN4KYyhQCZLFEN3PvPvSHwcaktv0Q_HhSjZ_LgkkiqpHKZ8qEPsZgW7UPrtPhqAioSZGaFKlJkZoUjQE8B6zpvYt_eFVKAiB5OSLZjDjf9qGL_1X-AAehcn4</recordid><startdate>20231001</startdate><enddate>20231001</enddate><creator>Sundaresan, Suresh M</creator><general>INFORMS</general><general>Institute for Operations Research and the Management Sciences</general><scope>OQ6</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><orcidid>https://orcid.org/0000-0003-0227-0509</orcidid><orcidid>https://orcid.org/0000-0002-2713-0476</orcidid></search><sort><creationdate>20231001</creationdate><title>Strategic Bank Liability Structure Under Capital Requirements</title><author>Sundaresan, Suresh M</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c325t-a6b2a0294fc4409f67a5591cca2434e28377a9123fb7ab8ae97ce6d71c8c37093</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2023</creationdate><topic>bank leverage</topic><topic>bank regulation</topic><topic>Banking industry</topic><topic>capital requirement</topic><topic>Capital requirements</topic><topic>Capital structure</topic><topic>deposit insurance</topic><topic>Liability</topic><topic>liability structure</topic><topic>Regulation</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Sundaresan, Suresh M</creatorcontrib><collection>ECONIS</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Management science</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Sundaresan, Suresh M</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Strategic Bank Liability Structure Under Capital Requirements</atitle><jtitle>Management science</jtitle><date>2023-10-01</date><risdate>2023</risdate><volume>69</volume><issue>10</issue><spage>6349</spage><epage>6368</epage><pages>6349-6368</pages><issn>0025-1909</issn><eissn>1526-5501</eissn><abstract>Banks strategically choose and dynamically restructure deposits and nondeposit debt in response to the minimum requirements on total capital and tangible equity. We derive the optimal strategic liability structure and show that it minimizes the protection for deposits conditional on capital requirements. Although, given any liability structure, regulators can set capital requirements high enough to remove the incentive for risk substitution, the strategic response to the capital requirements always preserves this incentive. Banks reduce leverage but increase the proportion of nondeposit debt if regulations raise the capital requirements.
This paper was accepted by Lukas Schmid, finance.
Supplemental Material:
The online appendix and data are available at
https://doi.org/10.1287/mnsc.2022.4570
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| ispartof | Management science, 2023-10, Vol.69 (10), p.6349-6368 |
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| language | eng |
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| subjects | bank leverage bank regulation Banking industry capital requirement Capital requirements Capital structure deposit insurance Liability liability structure Regulation |
| title | Strategic Bank Liability Structure Under Capital Requirements |
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