Profeśsor Magen's paper, “Cost of Capital and Dividend Policies in Commercial Banks” is an attempt to measure and explain the effects of financial leverage on the cost of capital for commercial banks. The methodology used is that of linear multiple regression which is inappropriate with regard to his data.

To assure that the commercial banking industry's performance serves the “convenience and needs” of the public, bank supervisory authorities have been vested with broad powers to alter the competitive environment in bank markets. While several criteria have been used to evaluate the effects of entry, merger, branching, and other changes in the allocation of bank resources, the results have been largely inconclusive. Since the regulatory authorities have pursued somewhat conflicting objectives in seeking a “failure-proof” system that is also “efficient,” there may be no single criterion for evaluation of bank behavior that is wholly consistent with the behavior predicted by the neoclassical theory of the firm.

Markowitz [12] and Tobin [19] pioneered in the development of a portfolio selection model resting on the assumptions that the investor

1. Chooses among alternative investment opportunities solely on the basis of expected return (E) and standard deviation of return 〈σ〉, and

2. Prefers more expected return to less but will refuse to incur additional risk (measured by standard deviation) unless compensated by increased expected return.

The purpose of this study is to analyze the behavior of the cost of equity capital in the commercial banks by looking at whether there exists an optimal composition of the bank “fund structure” that would maximize bank earnings through the minimization of its cost of funds. The analysis should give an approximate cut-off point for testing such projects as “checking plus,” checkless payment systems, etc.

Efficiency analysis is concerned with isolating the efficient subset of investments (portfolios) for all investors belonging to a specified group. In order to construct a meaningful efficiency criterion, i.e., one which holds for more than one investor, care must be exercised to ensure that the investors' efficient set is independent of their wealth.

Three main approaches to the problem of portfolio selection may be discerned in the literature. The first of these is the mean-variance approach, pioneered by Markowitz [21], [22], and Tobin [30]. The second approach is that of chance-constrained programming, apparently initiated by Naslund and Whinston [26]. The third approach, Latané [19] and Breiman [6], [7], has its origin in capital growth considerations. The purpose of this paper is to contrast the mean-variance model, by far the most well-known and most developed model of portfolio selection, with the capital growth model, undoubtedly the least known. In so doing, we shall find the mean-variance model to be severely compromised by the capital growth model in several significant respects.

The House of Brown was a major international banking firm during the nineteenth century. The leading banking houses such as Baring Brothers and the Browns facilitated the flow of goods throughout the world by providing a range of services vital to international commerce. Mr. Perkins examines the manner in which the firm did business in a large American port on the eve of the Civil War.

Most portfolio analysis is based on the use of two parameters, the mean and variance, of the statistical distribution of returns. Exceptions to this practice can be found in an empirical work by Arditti [1] and a theoretical paper by Levy [4], both using the third moment around the mean. It is the purpose of this paper to begin a general extension of the two-parameter analysis to three or more parameters. Accordingly, some problems will be solved, but others will be suggested for further analysis.

In the allocation of capital to investment projects, it is unlikely that optimal decisions will be reached unless anticipated inflation is embodied in the cash-flow estimates. Often, there is a tendency to assume that price levels remain unchanged throughout the life of the project. Frequently this assumption is imposed unknowingly; future cash flows are estimated simply on the basis of existing prices. However, a bias arises in that the cost-of-capital rate used as the acceptance criterion embodies an element attributable to anticipated inflation, while the cash-flow estimates do not. Although this bias may not be serious when there is modest inflation, it may become quite important in periods of high anticipated inflation. The purpose of this note is to investigate the nature of the bias and how it arises.