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Int. J. Financial Stud. 2019, 7(2), 21; https://doi.org/10.3390/ijfs7020021

Cross-Border Lending, Government Capital Injection, and Bank Performance

1
Department of International Business, Tamkang University, New Taipei City 25137, Taiwan
2
Department of Management Sciences, Tamkang University, New Taipei City 25137, Taiwan
3
School of Economics, Southwestern University of Finance and Economics, Chengdu 611130, China
*
Author to whom correspondence should be addressed.
Received: 31 January 2019 / Revised: 3 April 2019 / Accepted: 4 April 2019 / Published: 9 April 2019
PDF [576 KB, uploaded 9 April 2019]

Abstract

In this paper, we develop a contingent claim model to examine the optimal bank interest margin, i.e., the spread between the domestic loan rate and the deposit market rate of an international bank in distress. The framework is used to evaluate the cross-border lending efficiency for a bank that participates in a government capital injection program, a government intervention used in response to the 2008 financial crisis. This paper suggests that government capital injection is an appropriate way to recapitalize the distressed bank, enhancing the bank interest margin and survival probability. Nevertheless, the government capital injection lacks efficiency when the bank’s cross-border lending is high. Stringent capital regulation, suggested to prevent future crises by literature, leads to superior lending efficiency when the government capital injection is low.
Keywords: cross-border lending; bank interest margin; government capital injection; barrier option cross-border lending; bank interest margin; government capital injection; barrier option
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Lin, J.-H.; Lii, P.-C.; Huang, F.-W.; Chen, S. Cross-Border Lending, Government Capital Injection, and Bank Performance. Int. J. Financial Stud. 2019, 7, 21.

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