Bank Capital & Funding

This lecture covers the structuring of credit risk in non-agency CMOS, the role of different tranches in appealing to various investors, and the mechanisms of credit enhancement in securitization deals. It also discusses the capital structure of banks, the importance of bank capital ratios, and the determinants of bank funding. The lecture delves into Modigliani & Miller's propositions, the trade-off theory, and the pecking-order theory in determining optimal capital structure. It explores the reasons behind banks being more levered than non-banks, the significance of interbank lending, and the various types of interbank loans. Additionally, it touches upon the funding sources of banks, including commercial paper, capital market funding, and covered bonds.