Journal ArticleDOI
Optimal regulation of a fully insured deposit banking system
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In this paper, the authors analyze risk sensitive incentive compatible deposit insurance in the presence of private information when the market value of deposit insurance can be determined using Merton's (1977, 3-11) formula.Abstract:
We analyze risk sensitive incentive compatible deposit insurance in the presence of private information when the market value of deposit insurance can be determined using Merton's (1977, 3-11) formula. We show that, under the assumption that transferring funds from taxpayers to financial institutions has a social cost, the optimal regulation combines different levels of capital requirements combined with decreasing premia on deposit insurance. On the other hand, it is never efficient to require the banks to hold riskless assets. Finally, chartering banks is necessary in order to decrease the cost of asymmetric information.read more
Citations
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Examining the Relationships between Capital, Risk and Efficiency in European Banking
TL;DR: In this paper, the relationship between capital, risk, and efficiency for a large sample of European banks between 1992 and 2000 was analyzed and it was found that inefficient European banks appear to hold more capital and take on less risk.
Journal ArticleDOI
Bank Capital Regulation in Contemporary Banking Theory: A Review of the Literature
TL;DR: A review of the theoretical literature on bank capital regulation and some of the approaches to redesigning the 1988 Basel Accord on capital standards is given in this paper, followed by a brief history of capital regulation since the 1988 basel Capital Accord and a presentation of both the alternative approaches that have been put forward on setting capital standards and the Basel Committee's proposal for a new capital adequacy framework.
Posted Content
Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis
TL;DR: This paper examined the role of counterparty risk and liquidity hoarding in the U.S. overnight interbank market during the financial crisis of 2008 and found that the day after Lehman Brothers' bankruptcy, loan terms became more sensitive to borrower characteristics.
Journal ArticleDOI
Stressed, not Frozen: The Federal Funds Market in the Financial Crisis
TL;DR: The authors examined the role of counterparty risk and liquidity hoarding in the U.S. overnight interbank market during the financial crisis of 2008 and found that the day after Lehman Brothers' bankruptcy, loan terms become more sensitive to borrower characteristics, and poorly performing large banks see an increase in spreads of 25 basis points, but are borrowing 1% less on average.
Posted Content
Some evidence on the uniqueness of bank loans
TL;DR: In this article, the authors present evidence that banks provide some special service with their lending activity that is not available from other lenders, and they find evidence that bank borrowers, not CD holders, bear the cost of reserve requirements on CDs.
References
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Journal ArticleDOI
Bank Runs, Deposit Insurance, and Liquidity
TL;DR: The authors showed that bank deposit contracts can provide allocations superior to those of exchange markets, offering an explanation of how banks subject to runs can attract deposits, and showed that there are circumstances when government provision of deposit insurance can produce superior contracts.
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Manipulation of voting schemes: a general result
TL;DR: In this paper, it was shown that any non-dictatorial voting scheme with at least three possible outcomes is subject to individual manipulation, i.e., an individual can manipulate a voting scheme if, by misrepresenting his preferences, he secures an outcome he prefers to the "honest" outcome.
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What's different about banks?☆
TL;DR: The reserve tax on CD's is borne by bank borrowers as discussed by the authors, and it is assumed that bank borrowers are willing to pay higher interest rates than those on other securities of equivalent risk.
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An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory
TL;DR: In this paper, a formula is derived to evaluate the cost of issuing a guarantee of a loan by a third party, and the method used is to demonstrate an isomorphic correspondence between loan guarantees and common stock put options and then to use the well developed theory of option pricing to derive the formula.
Journal ArticleDOI
Regulating a monopolist with unknown costs
David P. Baron,Roger B. Myerson +1 more
TL;DR: In this paper, the authors consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator, and derive an optimal regulatory policy for the case in which the regulator does not know the costs of the firm.