Financial flexibility and the cost of external finance for U.S. bank holding companies.

BANKS RAISE capitals FROM segmented markets. While investors determine the risk premium in pricing uninsured claims, regulators play an important character in setting the risk premium upon insured claims by assessing deposit insurance premia, and imposing other regulatory requirements. This simple difference has been used to explain a number of observ regularities including bank risk taking, regulator behavior, and investor replys to bank news. And nevertheless little empirical work has explored banks' choices of in what way much funding to raise from each source, or the determinants of that choice. While logic argues that individual banks will trade not on the relative benefits ...