The Optimal Capital Structure of Banks: Balancing Deposit Insurance, Capital Requirements and Tax-Advantaged Debt

The capital structure and regulation of financial intermediaries is an important topic for practitioners, regulators and academic researchers. In general, theory predicts that firms choose their capital structures by balancing the benefits of debt (e.g., tax and agency benefits) against its costs (e.g., bankruptcy costs). However, when traditional corporate finance models have been applied to insured financial institutions, the results have generally predicted corner solutions (all equity or all debt) to the capital structure problem. This paper studies the impact and interaction of deposit insurance, capital requirements and tax benefits on a bankÇs choice of optimal capital structure. Using a contingent claims model to value the firm and its associated claims, we find that there exists an interior optimal capital ratio in the presence of deposit insurance, taxes and a minimum fixed capital standard. Banks voluntarily choose to maintain capital in excess of the minimum required in order to balance the risks of insolvency (especially the loss of future tax benefits) against the benefits of additional debt. Because we derive a closed- form solution, our model provides useful insights on several current policy debates including revisions to the regulatory framework for GSEs, tax policy in general and the tax exemption for credit unions.

Evaluating the March of Dimes NICU Family Support Program: Parent Support for Neonatal Transport

The purpose of the pilot study was to work in collaboration with the March of Dimes Family Support Team and the University of Connecticut Health Center (UCHC) to develop an evaluation instrument for the assessment of the Transport Module implemented by The March of Dimes Neonatal Intensive Care Unit (NICU) Family Support Program initiative at the UConn Health Center. A literature review of the topic illustrated the need for continuing research of successful family support interventions for parents experiencing the transport of their high-risk infant to a tertiary care NICU immediately after delivery. NICU staff members and the March of Dimes Organization can utilize the evaluation instrument created for this study to identify parent support needs and the effectiveness of module implementation across the country. Effective family support will increase parent confidence and decrease anxieties that are often associated with the birth of a pre-term infant.