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2009 | 4 | 2 | 81-88
Article title

The Interaction of Profitability with Solvency: A Simple Model of a Bank

Title variants
Languages of publication
EN
Abstracts
EN
This paper develops a simple deterministic model to analyze how the profitability of bank operations infuences the solvency of a banking firm. The results imply that the solvency ratio is directly related to the net interest margin (the "bread and butter" of bank profitability) and inversely related to the liquidity ratio. This model has several implications on the design of banking regulations: i) profitability has to be treated as "marginal" solvency, ii) a profitable bank can operate sustainably even with a low level of equity capital; iii) the supervisory framework has to be able to recognize any measure of earnings level, its trends, stability and quality; and finally iv) the frequency of audit trials has to be as high as possible.
Publisher
Year
Volume
4
Issue
2
Pages
81-88
Physical description
Dates
published
2009-11-01
online
2011-06-13
Contributors
  • Faculty of Economics, University of Niš
References
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Document Type
Publication order reference
Identifiers
YADDA identifier
bwmeta1.element.doi-10_2478_v10033-009-0016-1
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