Abstract:
Over the last several years, a combination of loan losses and regulatory barriers to equity
issuance have left Japanese banks starved for capital. In September 1995, the Mitsubishi Bank was
permitted to issue a complicated convertible security in a foreign market. The results of simulations
of the price path of the underlying equity imply that Mitsubishi Bank's annualized risk-adjusted cost of
capital through this instrument was between 80 and 310 basis points higher than if the bank had
instead been able to issue common stock at its current price.
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