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    Title: Bank Interest Margin and Default Risk under the Capped Schedule for Government Capital Injections in the Basel III Capital Adequacy Accord
    Authors: Chang, Chuen-Ping;Tsai, Jeng-Yan
    Contributors: 淡江大學國際企業學系
    Keywords: Basel III;Government capital injection;Bank interest margin;Failure probability
    Date: 2013-01
    Issue Date: 2013-03-03 23:29:52 (UTC+8)
    Publisher: Athens: International Scientific Press
    Abstract: The Basel III Capital Adequacy Accord (BCAA) will cap government capital injections as qualifying capital at 90% of the nominal amount of such capital outstanding, beginning in 2013, and the cap will decline by 10% during each subsequent year (Eubanks, 2010); this cap is called a capped ratio schedule of government capital instruments. We add to the literature on government capital injections by providing an option-based illustration of how the capped ratio schedule can influence bank interest margins and failure probability. We show that a declining capped ratio increases a bank’s volume of lending at a reduced margin and further increases its default risk. The capped ratio schedule as such makes the bank less prudent and more prone to risk-taking, thereby adversely affecting the stability of the banking system. Our findings provide alternative explanations for criticisms of BCAA.
    Relation: Journal of Applied Finance & Banking 3(1), pp.161-175
    Appears in Collections:[國際企業學系暨研究所] 期刊論文

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