Bank deregulation, credit markets, and the control of capital
A model with endogenously arising credit markets and banks is displayed. The model economy requires both types of institutions because they serve to control capital in different, yet complementary, ways. The value of credit market securities depends upon bank control of capital which markets cannot achieve. As regulations and technology change, the decision rules and contracts change, and the financial system creates new institutions, markets and assets. Since the model is at the level of underlying preferences and technology it can be used to consider the optimality of banking regulations when the underlying technology of controlling capital shifts. We show that, whatever the merits of the original arguments for bank regulation, with technological change bank regulation may become self-justifying. That is, we show that under plausible conditions the only reason bank regulation is needed is that it currently exists. Moreover, bank regulation can cause the very bank failures it purports to prevent. Bank regulators observing the world would erroneously argue for more bank regulations, including FDIC insurance, when this is, in fact, unnecessary.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 26 (1987)
Issue (Month): 1 (January)
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/jme|
When requesting a correction, please mention this item's handle: RePEc:eee:crcspp:v:26:y:1987:i::p:289-333. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.