Rescue plan, bank interest margin and future promised lending: an option-pricing model

Authors:
Jyh-Jiuan Lin;Ching-Hui Chang;Jyh-Horng Lin
Affiliations:
Department of Statistics, Tamkang University, Tamsui, Taipei County, Taiwan, ROC;Department of Applied Statistics and Information Science, Ming Chuan University, Gui-Shan District, Taoyuan, Taiwan, ROC;Graduate Institute of International Business, Tamkang University, Tamsui, Taipei County, Taiwan, ROC
Venue:
WSEAS Transactions on Information Science and Applications
Year:
2009

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Abstract

This paper examines a bank rescue plan for future lending. We demonstrate that an increase in the loans guaranteed by the government or in bank responsible for the first stake of any losses results in an increased interest margin. Eventually, the plan will be lifted when bank becomes healthy. The bank will keep its promise to increase its future lending at a reduced margin.