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.
Full paper (80 KB PDF)
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Last update: May 29, 2002