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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26680
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| Title: | State-Contingent Bank Regulation |
| Authors: | Nagarajan, S.
Sealey, C.W. |
| Issue Date: | 1997 |
| Series/Report no.: | FIN-97-009 |
| Abstract: | Current legislation attempts to solve incentive problems in bank
regulation, by instituting polices such as risk-adjusted deposit
insurance premiums, strict capital requirements, prompt closure
policies, etc. Recent theoretical works have shown such policies to be
neither necessary nor sufficient, per se, to solve these problems. In
this paper, we present a model of incentive compatible bank regulation
under moral hazard and adverse selection. We derive a wide range of
simple mechanisms that can solve both types of incentive problems and
also achieve first-best outcomes, but only when the regulatory
instruments involve ex post pricing base don’t eh performance of
the bank relative to the market. An important implication of the model
is that these mechanisms need not involve a subsidy to the bank. |
| URI: | http://hdl.handle.net/2451/26680 |
| Appears in Collections: | Finance Working Papers
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