Abstract
We use a two-stage contingent claim analysis model to study how capital regulation, deposit insurance, involvement in financial electronic commerce (e-commerce), and the optimal bank interest margin relate to one another under an uncertain loan loss source. Under strategic substitutes, both capital regulation and deposit insurance provide incentives for developing financial e-commerce, which helps the bank's growth. Our findings provide alternative explanations for the bank interest margin, which integrates the risk considerations of pricing equity with the bank's involvement in financial e-commerce, and for the asset–liability management rate-setting behavioral modes under capital regulation and deposit insurance.
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