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China is a major energy import powerhouse, its trade deals have significant impact on international energy trade and global energy markets. The purpose of this paper is to explore the role of energy in China’s preferential trade agreements (PTAs) and their impact on Chinese imports of oil, gas and coal.

An extended trade gravity model framework is applied to explore the dynamics of China’s annualized energy import flows from the 22 economies that have PTAs with it for the period 1995–2015.

The effect of PTAs on trade patterns varies across the product groups and agreement clauses. The dominant factor affecting trade flows of coal, crude oil and oil products is the average tariff level. Its impact is less significant for gas imports, which are more affected by policy arrangements represented by a PTA variable. The depth and scope of a PTA do not affect Chinese energy imports patterns.

This paper is focused on exploring the effect of China’s trade and foreign relations strategies on its energy imports through the prism of its PTAs. Estimating the direct impact of China’s initiatives in the areas of trade, investment, security, culture, etc., on its trade flows of energy products and other product groups using the methodological framework proposed in this study would contribute to better understanding of the issue.

The findings can assist both China and energy exporting countries that target Chinese market in better understanding the drivers of trade flows of energy products and design their PTA strategies accordingly.

This study applies the trade gravity model framework to assess the impact of specific components of preferential trade agreements – tariff reduction and depth and scope of agreement – on energy trade flows differentiated by product group.

The paper aims to investigate whether the value of banks is affected by their financing policies. Higher capital requirements have been invoked by exploiting a renewed edition of the Modigliani–Miller (M&M) theorem. This paper shows the limits of this claim by highlighting that the general statement that “bank equity is not expensive” can be misleading. The authors argue that market prices should play an important role in bank supervision. Expectations of future profits in prices supply timely information on the viability of a bank.

The authors use the Merton model to show the inapplicability of M&M theorem to banks. The long-run viability of a bank is analyzed with a dividend discount model which allows to compare a bank’s long-term profitability with its overall cost of capital implicit in market prices.

The authors show that the M&M framework cannot be applied to banks neither ex-ante nor ex-post. Ex-ante the authors focus on government guarantees, ex-post they emphasize the risk-shifting phenomena that may increase the overall risk of the bank. The authors show that a bank’s stability cannot be achieved if the market expectations of its future profits stay below the cost of funding.

The authors use simple analytical models. In a future study, some key peculiarities of banks, such as the monetary nature of deposits, should be analytically modelled.

The paper contributes to the debate on capital regulation on the level of capital requirements and the instruments to assess the viability/stability of banks.

This paper uses simple models to assess analytically the key issues in the debate on banks’ capital regulation.