NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Bank Capital Adequacy, Deposit Insurance and Security Values, Part I

William F. Sharpe

NBER Working Paper No. 209
Issued in October 1977

This paper provides a formal setting for the analysis of the capital adequacy of an institution with deposits insured by a third party. An insured depositor has a claim against the institution and a contingent claim against the insurer. This paper analyzes the effect of the riskiness of the asset mix and the relative amount of deposits and capital on the potential liability of the insurer. It shows that an increase in asset risk, holding value constant, increases the value of equity and raises the potential liability of the insurer.

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Document Object Identifier (DOI): 10.3386/w0209

Published: JFQA, Vol. 13, no. 4 (1978): 701-718.

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