Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/100949 
Year of Publication: 
2000
Series/Report no.: 
Working Paper No. 2000-18
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
Although financial instruments that, in effect, permit corporations to treat preferred stock dividends as tax-deductible interest have been used by nonfinancial corporations since late 1993, bank holding companies (BHCs) did not issue these trust-preferred securities (TPS) until 1996, when the Federal Reserve qualified them as Tier-1 capital. We delineate and test hypotheses with 1) analyses of the stock-market reaction to the Fed’s ruling and to TPS filings and 2) comparisons of BHCs that issued TPS with those that did not. We conclude that regulatory capital requirements, tax savings, and uninsured sources of funds can have significant positive effects on BHCs’ demand for capital; growth and investment opportunities have an inconclusive effect; and transaction costs have a negative effect. Our results are not consistent with the moral-hazard hypothesis.
Subjects: 
Bank capital
Bank holding companies
Bank supervision
Securities
Document Type: 
Working Paper

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