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A New Form of Banking -- Concept and Mathematical Model of Venture Banking

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  • Brian P Hanley

Abstract

This theoretical model contains concept, equations, and graphical results for venture banking. A system of 27 equations describes the behavior of the venture-bank and underwriter system allowing phase-space type graphs that show where profits and losses occur. These results confirm and expand those obtained from the original spreadsheet based model. An example investment in a castle at a loss is provided to clarify concept. This model requires that all investments are in enterprises that create new utility value. The assessed utility value created is the new money out of which the venture bank and underwriter are paid. The model presented chooses parameters that ensure that the venture-bank experiences losses before the underwriter does. Parameters are: DIN Premium, 0.05; Clawback lien fraction, 0.77; Clawback bonds and equity futures discount, 1.5 x (USA 12 month LIBOR); Range of clawback bonds sold, 0 to 100%; Range of equity futures sold 0 to 70%.

Suggested Citation

  • Brian P Hanley, 2018. "A New Form of Banking -- Concept and Mathematical Model of Venture Banking," Papers 1810.00516, arXiv.org, revised Nov 2020.
    • Handle: RePEc:arx:papers:1810.00516
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    1. Geoffrey W. Gardiner, 2006. "The Evolution of Creditary Structures and Controls," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-28844-7, December.
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