Business, Management and Accounting
4 years ago

New Study Reveals Federal Reserve Banks' Cost of Equity Capital

Federal Reserve Bank of San Francisco, Working Paper Series
" Alternative Measures of the Federal Reserve Banks' Cost of Equity Capital"
Michelle L. Barnes, Jose A. Lopez

Paper Summary

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The Federal Reserve Banks need to figure out how much it costs them to provide payment services, including a cost of equity capital. Different methods were used to estimate this cost, but the standard CAPM model with a big group of similar companies gave the most accurate result. Narrowing down the group or adding more factors didn't make a big difference. So, using the standard CAPM model is a good way to estimate the cost of equity capital for the Reserve Banks.