The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Search results: 13.
Principal‐Agent Problems in S&L Salvage
Published: 07/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb05104.x
EDWARD J. KANE
New legislation and traditional FDIC insolvency‐resolution procedures transform and intensify the principal‐agent problems most responsible for the FSLIC mess. These problems explain counterproductive constraints on the governance and operating policies of the agency responsible for rescuing and salvaging assets in insolvent thrifts: the RTC. The constraints slow insolvency resolution, increase interim financing costs, and undermine RTC recovery of asset value. Operationalizing its task as preserving evanescent and economically misconceived “franchise values,” the RTC allows insolvents to seek financing on an unconsolidated basis, initiates bidding for one institution at a time, holds back seriously troubled assets, and recruits an overly narrow range of bidders.
Technological and Regulatory Forces in the Developing Fusion of Financial‐Services Competition
Published: 07/01/1984 | DOI: 10.1111/j.1540-6261.1984.tb03667.x
EDWARD J. KANE
Product lines of traditionally heterogeneous financial institutions are rapidly fusing into a homogeneous blend. Institutions and market structures are reshaping themselves to lower the cost of serving customer demand for financial services. This paper contends that contemporary adaptations exploit scope economies rooted in technological change and deposit‐insurance subsidies to innovative forms of risk‐bearing.
Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms
Published: 03/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb05083.x
EDWARD J. KANE, HALUK UNAL
Hidden capital exists whenever the accounting measure of a firm's net worth diverges from its economic value. Such unbooked capital has on‐balance‐sheet and off‐balance‐sheet sources. This paper develops a model to estimate both forms of hidden capital and to test hypotheses about their determinants. In effect, the analysis expands the two‐index model by endogenizing the market and interest‐rate sensitivities of any stock and decomposing each sensitivity into on‐balance‐sheet and off‐balance‐sheet elements. For a sample of banks during 1975–1985, the model finds considerable variation in both forms of hidden capital.
Effectiveness of Capital Regulation at U.S. Commercial Banks, 1985 to 1994
Published: 03/31/2007 | DOI: 10.1111/0022-1082.00212
Armen Hovakimian, Edward J. Kane
Unless priced and administered appropriately, a governmental safety net enhances risk‐shifting opportunities for banks. This paper quantifies regulatory efforts to use capital requirements to control risk‐shifting by U.S. banks during 1985 to 1994 and investigates how much risk‐based capital requirements and other deposit‐insurance reforms improved this control. We find that capital discipline did not prevent large banks from shifting risk onto the safety net. Banks with low capital and debt‐to‐deposits ratios overcame outside discipline better than other banks. Mandates introduced by 1991 legislation have improved but did not establish full regulatory control over bank risk‐shifting incentives.
Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital*
Published: 03/01/1981 | DOI: 10.1111/j.1540-6261.1981.tb03534.x
STEPHEN A. BUSER, ANDREW H. CHEN, EDWARD J. KANE
This paper seeks to explain the combination of explicit and implicit pricing for deposit insurance employed by the FDIC. Essentially, the FDIC sells two products—insurance and regulation. To span the product space, it must and does set two prices. We argue that the need to establish regulatory disincentives to bank risk‐taking is the heart of the controversy over the adequacy of bank capital and that the ability to close risky banks before exhausting their charter value (i.e., the value of their right to continue in business) stands at the center of these disincentives and in front of the FDIC's insurance reserves.