ch13 THE EFFECTIVE USE OF CAPITAL 银行相关管理学 英文版本.pptVIP

The effect of capital requirements on bank operating policies: limiting growth External capital sources Banks that choose to expand more rapidly must obtain additional capital from external sources, a capability determined by asset size. Large banks tap the capital markets regularly, but small banks must pay a stiff premium to obtain capital, if it is available at all. Capital sources can be grouped into one of four categories: subordinated debt, common stock, preferred stock, or trust preferred stock and leases. Each carries advantages and disadvantages. Subordinated debt Does not qualify as Tier 1 or core capital Imposes an interest expense burden on the bank when earnings are low. Subordinated debt offers several advantages to banks. interest payments are tax-deductible, generates additional profits for shareholders as long as earnings before interest and taxes exceed interest payments. Subordinated debt also has shortcomings. interest and principal payments are mandatory, default if not paid many issues require sinking funds Common stock Common stock is preferred by regulators as a source of external capital. It has no fixed maturity and thus represents a permanent source of funds. Dividend payments are discretionary, Losses can be charged against equity, not debt, so common stock better protects the FDIC. Common stock is not as attractive from the banks perspective due to its high cost because: dividends are not tax-deductible, transactions costs on new issues exceed comparable costs on debt, and shareholders are sensitive to earnings dilution and possible loss of control in ownership. Preferred stock Preferred stock is a form of equity in which investors claims are senior to those of common stockholders. As with common stock, preferred stock pays nondeductible dividends One significant difference is that corporate investors in preferred stock pay taxes on only 20 percent of dividends. For this reason, institutional investors dominate t