Bank valuation and its connections with the subprime mortgage crisis and basel II capital accord

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dc.contributor.author Petersen, Mark
dc.contributor.author Senosi, Mmamontsho Charlotte
dc.contributor.author Mukuddem-Petersen, Janine
dc.contributor.author Fouche, C H
dc.date.accessioned 2009-09-02T08:14:21Z
dc.date.available 2009-09-02T08:14:21Z
dc.date.issued 2008
dc.identifier.citation FOUCHE, C.H., PETERSEN, M., SENOSI, M.A. & MUKUDDEM-PETERSEN, J. 2008. Bank valuation and its connections with the subprime mortgage crisis and basel II capital accord. Discrete dynamics in nature and society, 2008:44 pages[http://www.hindawi.com/journals/ddns/]
dc.identifier.issn 1026-0226
dc.identifier.issn 1607-887X (Online)
dc.identifier.uri http://hdl.handle.net/10394/2208
dc.description.abstract The ongoing subprime mortgage crisis (SMC) and implementation of Basel II Capital Accord regulation have resulted in issues related to bank valuation and profitability becoming more topical. Profit is a major indicator of financial crises for households, companies, and financial institutions. An SMC-related example of this is the U.S. bank, Wachovia Corp., which reported major losses in the first quarter of 2007 and eventually was bought by Citigroup in September 2008. A first objective of this paper is to value a bank subject to Basel II based on premiums for market, credit, and operational risk. In this case, we investigate the discrete-time dynamics of banking assets, capital, and profit when loan losses and macroeconomic conditions are explicitly considered. These models enable us to formulate an optimal bank valuation problem subject to cash flow, loan demand, financing, and balance sheet constraints. The main achievement of this paper is bank value maximization via optimal choices of loan rate and supply which leads to maximal deposits, provisions for deposit withdrawals, and bank profitability. The aforementioned loan rates and capital provide connections with the SMC. Finally, OECD data confirms that loan loss provisioning and profitability are strongly correlated with the business cycle.
dc.description.uri http://www.hindawi.com/journals/ddns/2008/740845.html
dc.language.iso en en
dc.publisher Hindawi Publishing Corporation
dc.rights Copyright © 2008 C. H. Fouche et al. 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.
dc.title Bank valuation and its connections with the subprime mortgage crisis and basel II capital accord en
dc.type Article en

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