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Capital Structure, Agency Problems, and Deposit Insurance in Banking Firms
Author(s) -
Arshadi Nasser
Publication year - 1989
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1989.tb00329.x
Subject(s) - agency cost , deposit insurance , capital structure , business , agency (philosophy) , capital (architecture) , incentive , finance , shareholder , financial capital , capital adequacy ratio , cost of capital , economic capital , monetary economics , financial system , economics , microeconomics , market economy , human capital , corporate governance , debt , history , philosophy , archaeology , epistemology
This paper applies and synthesizes various theories of corporate finance, including capital structure, agency insurance, and regulation, to the case of banking firms and the deposite insurance system. It is argued that a value‐maximizing bank would reach its optimal capital structure by minimizing the agency costs of incentive conflicts among stockholders, managers, uninsured depositors, and the deposit insurance agency. Although a regulatory imposed capital requirment may reduce the agency costs inherent in the insurance contact, it cannot produce a universal capital structure that is optimal for all insured banks. The observed capital structure patterns also suggest that banks actively seek an optimal capital structure.