The Role of Bank Capital in Bank Holding Companies’ Decisions
- Mr.Adolfo Barajas
- Mr.Thomas F. Cosimano
- Ms.Dalia Hakura
- Sebastian Roelands
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Know about the book -
The Role of Bank Capital in Bank Holding Companies’ Decisions is written by Mr.Adolfo Barajas and published by International Monetary Fund. It's available with International Standard Book Number or ISBN identification 1498393322 (ISBN 10) and 9781498393324 (ISBN 13).
This paper examines the role of bank capital in decision-making by bank holding companies (BHCs) in the United States. Following Chami and Cosimano’s (2001) call option approach to bank capital, BHCs optimally choose the amount of capital to insure the bank against becoming capital constrained in the future. We provide empirical support for this model, and find that a higher optimal level of capital leads to higher loan rates. Furthermore, higher loan rates result in lower amounts of lending. Thus, an increase in capital requirements is likely to lead to higher loan rates and a significant reduction in lending.
