Previous research on market-based evaluation of bank equity with government bailout has modelled the bank as a corporate firm with risky assets and liabilities. No attempt was made to analyse explicitly equity quality expressed as a situation when the carrying value of the bank's equity book is above the market price, in particular, during the financial crisis. The purpose of this article is to model bank equity quality explicitly and examine the relationships between direct equity capital injections by the government and bank interest margin (and thus bank equity quality). Comparative static results with simulation exercises show that the bailout programme of direct equity injections may be efficient in terms of bank equity quality when the bailout amount is relatively small-size and the bank's interest margin is relatively low.View full textDownload full textKeywordsbank bailout, equity quality, direct equity injections, interest marginJEL ClassificationG13, G28Related var addthis_config = { ui_cobrand: "Taylor & Francis Online", services_compact: "citeulike,netvibes,twitter,technorati,delicious,linkedin,facebook,stumbleupon,digg,google,more", pubid: "ra-4dff56cd6bb1830b" }; Add to shortlist Link Permalink http://dx.doi.org/10.1080/13504851.2011.608636
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