Importance Intense competition, tougher requirements to bank capital adequacy, tighter monetary policy, banking crises, and declining profitability in many segments of the Russian stock market increase the need for qualitative estimation of the cost of capital of a commercial bank. Objectives The research aims to develop methods to estimate the cost of capital of a commercial bank, and to refine definitions and categories under consideration. Methods In the paper, we applied a systems approach that, on the one hand, considers a Russian commercial bank as an element of the financial market, and, on the other hand, as an independent entity performing investment, credit, deposit functions and having organizational, legal and financial specifics. The paper also employs various methods of scientific knowledge, like comparative analysis, economic and mathematical modeling, and statistical techniques. Results We present our own unique concept of addressing the controversial topic of reliable estimate of the cost of capital of a commercial bank. Furthermore, we update fundamental definitions, identify key factors influencing the structure of banking capital, analyze sources of its formation, and describe the methodological approach enabling to achieve objective estimation. Conclusionsand Relevance The ratings of credit organizations generated under our unique methodology will contribute to the development of a set of financial and economic measures to improve the efficiency of their business operations.
Keywords: bank, capital, cost of capital, shareholders' equity, capital valuation
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