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Dynamic Banking and the Value of Deposits / Patrick Bolton, Ye Li, Neng Wang, Jinqiang Yang.
- Format:
- Book
- Author/Creator:
- Bolton, Patrick.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w28298.
- NBER working paper series no. w28298
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- We propose a dynamic theory of banking where the role of deposits is akin to that of productive capital in the classical q-theory of investment. As a cheap source of leverage, deposits typically create value for banks, but the marginal q of deposits can be negative. Deposit accounts commit banks to accept any inflows and outflows, so that banks cannot perfectly control leverage. Such uncertainty destroys value when banks have insufficient equity capital to buffer shocks. Our model lends itself to a re-evaluation of leverage regulations and offers new perspectives on banking in a low interest-rate environment.
- Notes:
- Print version record
- December 2020.
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