The authors examine the optimal design of a risk-adjusted deposit insurance scheme when the regulator has less information than the bank about the inherent risk of the bank's assets (adverse selection) and when the regulator is unable to monitor the extent to which bank resources are being directed away from normal operations toward activities that lower asset quality (moral hazard). Under a socially optimal insurance scheme: (1) asset quality is below the first-best level, (2) higher-quality banks have larger asset bases and face lower capital adequacy requirements than lower-quality banks, and (3) the probability of failure is equated across banks

We examine the optimal design of a risk‐adjusted deposit insurance scheme when the regulator has less information than the bank about the inherent risk of the bank's assets (adverse selection), and when the regulator is unable to monitor the extent to which bank resources are being directed away from normal operations toward activities that lower asset quality (moral hazard). Under a socially optimal insurance scheme: (1) asset quality is below the first‐best level, (2) higher‐quality banks have larger asset bases and face lower capital adequacy requirements than lower‐quality banks, and (3) the probability of failure is equated across banks

We review the contemporary theory of financial intermediation. The focus is on contributions in the past 15 years or so that have advanced our understanding of why financial intermediaries exist, the credit allocation and other services they provide in spot and forward credit markets, the contractual nature and allocational consequences of the claims they issue, and the optimal design of bank regulation. Journal of Economic Literature Classification Numbers: 310, 312, and 314

Bank failures and the official safety net lessons of the great crash banking and securities business - the separate issues the US Glass-Steagall Act reforming Japan's financial system UK financial regulation after big bang the new financial regulatory framework in Canada universal banking - Germany and Switzerland the EEC's new regulatory regime weighing the policy alternatives - theory and practice a risky experiment post-script - the Bank of Credit and Commerce International

The last decade has witnessed dramatic changes in economic policy in the developing world. On every continent, countries have moved to open their economies, free up prices, and reduce the role of the state in managing and regulating economic activity. Developing nations from Mexico to Malaysia have made changes in their economies that dwarf anything achieved by Ronald Reagan. The design of structural adjustment programs directed at the four ... ations-stabilization, liberalization, deregulation, privatization-has become a cottage industry. Efforts at structural adjustment have been assisted and encouraged by the international community, most directly through multilateral financial institutions. The International Monetary Fund has long conditioned its support on policies consistent with macroeconomic stability. The IMF has increasingly taken the position that changes in economic structure are necessary if stabilization is to be attained and maintained. Structural-adjustment lending (lending conditioned on specific economic policy changes) has emerged as a major instrument of World Bank support to developing countries, and World Bank investment lending has increasingly been conditioned on policy reforms. Given the extent of economic change that structural-adjustment programs have wrought, it is hardly surprising they have been controversial. This paper summarizes the results of the latest World Bank Review of Adjustment Lending (World Bank, 1992) and highlights the crucial identification problem involved in assessing structuraladjustment programs. We then try to advance the debate over structural-adjustment lending by distilling the main lines of criticism levied against structural-adjustment programs to four critiques and assessing the validity of each. In conclusion, we point to three newer issues for which we believe further research and analysis are necessary