Working Paper: NBER ID: w0737
Authors: Yair E. Orgler; Robert A. Taggart Jr.
Abstract: This paper applies some recent advances in corporate capital structure theory to the determination of optimal capital in banking. The effects of corporate and personal taxes, government regulation, the technology of producing deposit services and the costs of bankruptcy and agency problems are all discussed in the context of the U.S. commercial banking system. The analysis suggests explanations for why commercial banks tend to have relatively less capital than nonfinancial firms, why commercial bank leverage has tended to increase over time and why large banks tend to have relatively less capital than small banks.
Keywords: Corporate capital structure; Banking institutions; Leverage; Agency costs; Regulation
JEL Codes: G21; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax considerations (H24) | Capital structure (G32) |
| Regulatory environment (G38) | Perceived risk of bankruptcy (G33) |
| Perceived risk of bankruptcy (G33) | Leverage (G32) |
| Larger banks (G21) | Capital structure (G32) |
| Nature of liabilities (G32) | Capital structure (G32) |