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Capital structure in banking

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  • Simon H. Kwan

Abstract

Capital structure theories seek to explain why businesses choose different mixes of debt and equity to finance their operations. Banking firms represent a special case because of certain unique features in the industry, including a federal safety net and extensive regulation. The financial crisis of the past two years provided another set of special circumstances in which banks needed to raise capital. The preference banks have shown for issuing preferred shares in the private market in favor of government financing can be viewed through the lenses of capital structure theories.

Suggested Citation

  • Simon H. Kwan, 2009. "Capital structure in banking," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec7.
    • Handle: RePEc:fip:fedfel:y:2009:i:dec7:n:2009-37
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    References listed on IDEAS

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    1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    2. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    3. Merton, Robert C., 1977. "An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 3-11, June.
    4. Janet L. Yellen, 2009. "Linkages between monetary and regulatory policy: lessons from the crisis," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov23.
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    Cited by:

    1. Cole, John A. & Cadogan, Godfrey, 2014. "Bankruptcy risk induced by career concerns of regulators," Finance Research Letters, Elsevier, vol. 11(3), pages 259-271.
    2. Kim, Dong H. & Stock, Duane, 2012. "Impact of the TARP financing choice on existing preferred stock," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1121-1142.
    3. Mohammad Nayeem Abdullah & Emon Kalyan Chowdhury & Rahat Bari Tooheen, 2022. "Determinants of capital structure in banking sector: a Bangladesh perspective," SN Business & Economics, Springer, vol. 2(12), pages 1-19, December.

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    Keywords

    Banks and banking; Capital;

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