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Article: Regret theory and the banking firm: The optimal bank interest margin

TitleRegret theory and the banking firm: The optimal bank interest margin
Authors
KeywordsBank interest margins
Banking firms
Credit risk
Regret theory
Issue Date2011
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ecmod
Citation
Economic Modelling, 2011, v. 28 n. 6, p. 2483-2487 How to Cite?
AbstractThis paper examines the optimal bank interest margin, i.e., the spread between the loan rate and the deposit rate of a bank, when the bank is not only risk-averse but also regret-averse. Regret-averse preferences are characterized by a utility function that includes disutility from having chosen ex-post suboptimal alternatives. We show that the presence of regret aversion raises or lowers the optimal bank interest margin than the one chosen by the purely risk-averse bank, depending on whether the probability of default is below or above a threshold value, respectively. Regret aversion as such makes the bank less prudent and more prone to risk-taking when the probability of default is high, thereby adversely affecting the stability of the banking system. © 2011 Elsevier B.V.
Persistent Identifierhttp://hdl.handle.net/10722/139809
ISSN
2015 Impact Factor: 0.997
2015 SCImago Journal Rankings: 0.815
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorWong, KPen_HK
dc.date.accessioned2011-09-23T05:56:34Z-
dc.date.available2011-09-23T05:56:34Z-
dc.date.issued2011en_HK
dc.identifier.citationEconomic Modelling, 2011, v. 28 n. 6, p. 2483-2487en_HK
dc.identifier.issn0264-9993en_HK
dc.identifier.urihttp://hdl.handle.net/10722/139809-
dc.description.abstractThis paper examines the optimal bank interest margin, i.e., the spread between the loan rate and the deposit rate of a bank, when the bank is not only risk-averse but also regret-averse. Regret-averse preferences are characterized by a utility function that includes disutility from having chosen ex-post suboptimal alternatives. We show that the presence of regret aversion raises or lowers the optimal bank interest margin than the one chosen by the purely risk-averse bank, depending on whether the probability of default is below or above a threshold value, respectively. Regret aversion as such makes the bank less prudent and more prone to risk-taking when the probability of default is high, thereby adversely affecting the stability of the banking system. © 2011 Elsevier B.V.en_HK
dc.languageengen_US
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ecmoden_HK
dc.relation.ispartofEconomic Modellingen_HK
dc.subjectBank interest marginsen_HK
dc.subjectBanking firmsen_HK
dc.subjectCredit risken_HK
dc.subjectRegret theoryen_HK
dc.titleRegret theory and the banking firm: The optimal bank interest marginen_HK
dc.typeArticleen_HK
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_HK
dc.identifier.authorityWong, KP=rp01112en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.econmod.2011.07.007en_HK
dc.identifier.scopuseid_2-s2.0-79961113894en_HK
dc.identifier.hkuros193900en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-79961113894&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume28en_HK
dc.identifier.issue6en_HK
dc.identifier.spage2483en_HK
dc.identifier.epage2487en_HK
dc.identifier.isiWOS:000298070200016-
dc.publisher.placeNetherlandsen_HK
dc.identifier.scopusauthoridWong, KP=7404759417en_HK
dc.identifier.citeulike9650758-

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