A note on selling distressed loans with bank bailouts: modeling of bank interest margins with default probabilities

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Title:	A note on selling distressed loans with bank bailouts: modeling of bank interest margins with default probabilities
Authors:	Lin, Jyh-Horng;Lin, Jyh-Jiuan;Chang, Ching-Hui
Contributors:	淡江大學統計學系
Keywords:	bank bailout;interest margin;default probability;distressed loan;G28, G13
Date:	2012
Issue Date:	2014-09-03 16:34:22 (UTC+8)
Publisher:	Abingdon: Routledge
Abstract:	This article extends the framework of Merton (1974) with Vassalou and Xing (2004) to value a troubled but solvent bank’s equity by explicitly incorporating distressed assets purchased by the government in an imperfectly competitive loan market. We show that the bank may be willing to take this bailout when the purchased amount is relatively small and the margin is relatively low. However, the bank may be harder to entice even when the unit price of the bailed-out assets subsidized by the government is relatively high. As a consequence, most of the first half of the Troubled Asset Relief Program’s money is not used to buy troubled assets (Wilson, 2010).
Relation:	Applied Economics Letters 19(7), pp.623-627
DOI:	10.1080/13504851.2011.591724
Appears in Collections:	[Graduate Institute & Department of Statistics] Journal Article

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