A note on bank bailout: equity quality and direct equity injections

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Title:	A note on bank bailout: equity quality and direct equity injections
Authors:	Lin, Jyh-Horng;Chang, Chuen-Ping;Hung, Wei-Ming
Contributors:	淡江大學國際企業學系
Keywords:	bank bailout;equity quality;direct equity injections;interest margin
Date:	2012
Issue Date:	2011-10-07 13:25:21 (UTC+8)
Publisher:	Abingdon: Routledge
Abstract:	Previous research on market-based evaluation of bank equity with government bailout has modelled the bank as a corporate firm with risky assets and liabilities. No attempt was made to analyse explicitly equity quality expressed as a situation when the carrying value of the bank's equity book is above the market price, in particular, during the financial crisis. The purpose of this article is to model bank equity quality explicitly and examine the relationships between direct equity capital injections by the government and bank interest margin (and thus bank equity quality). Comparative static results with simulation exercises show that the bailout programme of direct equity injections may be efficient in terms of bank equity quality when the bailout amount is relatively small-size and the bank's interest margin is relatively low.
Relation:	Applied Economics Letters 19(10), pp.947-951
DOI:	10.1080/13504851.2011.608636
Appears in Collections:	[Graduate Institute & Department of International Business] Journal Article

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