The Optimal Bank Closure Policies
| Autor: | Ting Pi-Hui, 丁碧慧 |
|---|---|
| Rok vydání: | 1998 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 86 This dissertation, under the present fixed-rate deposit insurancescheme, derives the optimal bank closure/reorganization policies for a purecost-minimizing regulator and a welfare-maximizing regulator. First, wederive the optimal bank closure policies under the assumption that thebank''s asset portfolio risk is perfectly observed by the regulator througha post audit. Then, we relax the above assumption and treat the bank''sinvestment decision as an endogenous variable to consider the impact ofmoral hazard problem on the optimal bank closure policies. Here, the moralhazard problem is defined by that the regulator decides the optimal closurepolicy based on the bank''s risk as of the date t and the bank increasesits risk soon after t. We show that the optimal bank closure policies are bank-specific anddepend on the objective of regulator. If there is a moral hazard problemunder which the regulator cannot perfectly observe the bank''s assetportfolio risk, the optimal bank closure policies are functions of thecharter value of the bank because the bank''s charter value is an importantfactor of influencing its investment decision. When the regulator seeksto minimize reorganization cost, he should delay the closure of a bank witha larger charter value. However, for a welfare-maximizing regulator, theoptimal time when the bank must be closed should be earlier if the bank''scharter value is larger. Under the special cases when the bank''s assetportfolio risk can be perfectly observed by the regulator, the thresholdassets-to-deposits ratio, below which a bank should be optimally closed,should depend on the bank''s asset portfolio risk. For a cost—minimizingregulator, the threshold assets-to-deposits ratio is increasing in thebank''s asset portfolio risk. However, if the regulator seeks to maximizesocial welfare, the threshold level is shown to be decreasing in the bank''sasset portfolio risk. In addition, the deposit insurance premium willaffect the threshold level. Under the objective of minimizing cost, thecurrent deposit insurance premium has an ambiguous impact on the thresholdassets-to-deposits ratio; but the welfare-maximizing regulator shouldincrease assets-to-deposits ratio when raising the deposit insurancepremium. Moreover, delaying the closure of an insolvency bank will increase thecost of the regulator except that the spread between the interest rate ondeposits and the risk-free interest rate is large enough to cover the auditcost. However, whether the forbearance policy is optimal depends on thecurrent deposit insurance premium for a welfare-maximizing regulator. Ifthe current deposit insurance premium is less than the threshold depositinsurance premium that is increasing in marginal benefit of audit cost,the forbearance policy can improve social welfare. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
| Externí odkaz: |
|