Creator: Boyd, John H. and Graham, Stanley L. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 398 Abstract:
This study estimates the effects of allowing bank holding companies (BHCs) to enter several lines of financial business not now permitted. A simulation technique is used to estimate the risk and return of hypothetical financial corporations after merger between a BHC and a large firm in each of these industries: securities, real estate, life insurance, property and casualty insurance, and insurance agencies. The study concludes that a merger between a BHC and a life insurance company may decrease the probability of bankruptcy for the merged firm relative to the BHC alone. This result does not hold true, however, for BHC mergers with firms in the other industries. In particular, BHC mergers with securities or real estate firms are found to increase the probability of bankruptcy.
Keyword: Bank holding company, Securities, Insurance, Risk, Merger, Bank holding companies, Bankruptcy, and Real estate Subject (JEL): G28 - Financial institutions and services - Government policy and regulation, G21 - Financial institutions and services - Banks ; Other depository institutions ; Micro finance institutions ; Mortgages, and G32 - Corporate finance and governance - Financing policy ; Financial risk and risk management ; Capital and ownership structure
Creator: Boyd, John H. and Smith, Bruce D., d. 2002. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 512 Abstract:
We investigate ex-ante efficient contracts in an environment in which implementation is costless. In this environment, standard debt contracts will typically not be optimal. Optimal contracts may involve defaults, even in states in which the borrower is fully able to repay. We then examine the welfare costs of arbitrarily restricting the set of feasible contracts to standard debt contracts. When model parameters are calibrated to realistic values, the welfare loss from exogenously imposing this restriction is extremely small. Thus, if the implementation costs are actually nontrivial (as seems likely), standard debt contracts will be (very close to) optimal.
Keyword: CESV, CSV, Debt, Contracts, Standard debt contract, Costly ex-post state verification, Bankruptcy, Optimal contract, Ex ante contract, Financial contract, Loans, and Costly state verification Subject (JEL): D86 - Information, knowledge, and uncertainty - Economics of contract : Theory and G10 - General financial markets - General