Optimal Prudential Regulation of Banks and the Political Economy of Supervision

Optimal Prudential Regulation of Banks and the Political Economy of Supervision
We consider a moral hazard economy in banks and production to study how incentives for risk taking are affected by the quality of supervision. We show that low interest rates may generate excessive risk taking. Because of a pecuniary externality, the market equilibrium may not be optimal and there is a need for prudential regulation. We show... READ MORE...

Publication date: May 2014
ISBN 9781498338554
$18.00

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