We analyze optimal risk management strategies of a bank financed with deposits and equity in a one period model. The bank’s motivation for risk management comes from deposits which can lead to bank runs. In the event of such a run, liquidation costs arise. The hedging strategy that maximizes the value of equity is derived. We identify conditions under which well known results such as complete h...

Competition among banks promotes growth and stability for an economy with production externality. Following Arrow and Debreu (1954) [6], I formulate a standard growth model with externality—a twoperiod version of Romer (1986) [39]—as a game among consumers, firms, and intermediaries. The Walrasian equilibrium, with an auctioneer, does not achieve the social optimum. Without an auctioneer or int...

Using firm level data from eight Sub-Saharan Africa countries we examine credit constraint differentials between male and female manufacturing entrepreneurs. Enterprises owned by female entrepreneurs are less likely to be credit constrained compared to their male counterparts. The magnitude of this credit constraint gap varies with constraint and ownership definitions but the direction of the g...

I study the optimal architecture of bank supervision in a federal system. A central supervisor gets information about a bank, for instance through stress-testing, and decides whether an on-site examination should be performed by a local or a central authority. Local supervisors have lower inspection costs, but do not internalize crossborder externalities. The optimal degree of centralization de...

This paper examines the impact of the risk-based capital (RBC) requirements on bank cost efficiencies. We take into consideration both onand off-balance sheet (OBS) products and allow product mixes to differ across banks and to vary over time. Our empirical results suggest that the cost structures of large banks are significantly different during the pre-RBC and post-RBC periods. That is, the R...

Like many financial contracts, derivatives are subject to default risk. A very popular mechanism in derivatives markets to mitigate the risk of non-performance on contracts is margining. By attaching collateral to a contract, margining supposedly reduces default risk. The broader impacts of the different types of margins are more ambiguous, however. In this paper we develop both, a theoretical ...

We investigate bank holding companies’ window dressing of quarter-end short-term borrowings. We find evidence of downward window dressing of short-term borrowings through repo and federal funds that appears material for a large fraction of the sample. Such downward window dressing is more pronounced at banks with higher leverage, lower capital adequacy ratios, and greater management compensatio...

This study estimates cost efficiency, scale economies, technological progress and productivity growth for Indonesian banks over the period 1993-2000. Overall the cost efficiency of all banks during this period was 69.82%. However, on average the efficiency of banks prior to the Asian crisis and after the Asian crisis were 79.67% and 53.40% respectively. Moreover, the results also indicate that ...

We examine what is perceived as one of the main culprits in the occurrence of banking crises: financial liberalization. As is typically argued, if liberalization is accompanied by insufficient prudential supervision of the banking sector, it will result in excessive risk taking by financial intermediaries and a subsequent crisis. Having evaluated the empirical validity of this hypothesis, we co...

In this paper, we investigate the short-run and long-run macroeconomic effects of bank net worth and capital adequacy regulations. In general, capital adequacy regulations work as a stabilizer in the sense that they reduce the macroeconomic effects of negative productivity shocks. In addition, strengthening of the regulations increases the long-run capital stock, although it may lead the econom...