Optimal Bank Capital with Costly Recapitalization

  title={Optimal Bank Capital with Costly Recapitalization},
  author={Samu Peura and Jussi Keppo},
We study optimal bank capital choice as a dynamic tradeoff between the opportunity cost of equity, the loss of franchise value following a regulatory minimum capital violation, and the cost of recapitalization. Our model indicates that a recapitalization option may be valuable despite substantial delays and costs of capital issuance, and that a significant fraction of the value of low capitalized banks may be attributable to the option to recapitalize. We calibrate the model to bank accounting… CONTINUE READING

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Publications referenced by this paper.

Stress tests of banks’ regulatory capital adequacy: application to Tier-1 capital. The Basel Handbook: A guide for Financial Practitioners

  • E. Jokivuolle, S. Peura
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2 Excerpts

Dividends, costly external capital, and firm value: the case of constant scale

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