The Financial Capital Constraint and the Valuation of Commercial Banking Activity
2018
Hartwick, John M.
Equity capital makes the value of liabilities equal the value of assets in a commercial banks balance sheet This fact makes valuation of banking activity straightforward The cost of shareholder riskbearing becomes a natural entry into the cost side of valueadded Expected losses from lending become an entry in valueadded and this leads to the concept of ex ante and ex post valueadded A model of a protmaximizing bank is set out and the role of homogeneity in the production functions turns out to be crucial in dening inputs and output The implicit price of deposit capital is analyzed including the question of whether deposits are a cheap source of funds to the bank
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