Government bailout return, bank interest margin, and banking stability in a option framework.

• Main Authors: YI-TING TSAI, 蔡依婷
• Other Authors: 林志鴻
• Format: Others
• Language: en_US
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/80444593200405546884

碩士 === 淡江大學 === 國際企業學系碩士班 === 102 === The barrier options theory of corporate security valuation is applied to the contingent claims of a bank in distress. This thesis examines the optimal bank interest margin, i.e., the spread between the loan rate and the deposit rate, when the distressed bank is bailed out by the government’s distressed asset purchases and direct equity capital injections based on the Emergency Economic Stabilization Act in 2008. We find that the optimal bank interest margin at various levels of barrier is positively related to distressed loan purchases and direct equity capital injections. The positive expected return from the government’s bailout investment, that this focus might be in the very best interest of taxpayers, is negatively related to both the bailout programs. Government bailouts as such make the bank less prone risk taking, thereby contributing the stability of the banking system. In particular, restoring the banking stability may not cost taxpayers. Our results largely support the Act.