Journal of Financial Intermediation Vol. 2 No. 3 1992
An incentive-based theory of bank regulation
Abstract
In this paper we analyze how depositors can employ both monitoring and capital requirements to control the risk of bank assets. We also analyze how monitors should be compensated if their actions are not directly observable and if there are binding limits on their liability. Second-best capital and monitoring levels (with unobservable actions) will be distorted away from their respective first-best levels. We derive some results about the nature of these distortions and characterize the optimal incentive scheme for monitors.
- DOI
- 10.1016/1042-9573(92)90002-u
- Volume
- 2
- Issue
- 3
- Pages
- 255-276
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref