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Who Should Act as Lender of Last Resort? An Incomplete Contracts Model: A Comment

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  • Kahn, Charles M.
  • Santos, Joao A. C.

Abstract

Researchers have pointed out that conflicts between the objectives of different bank regulators necessitate careful design of the institutional allocation of regulatory authority. In doing this, however, they often assume that regulators have incentives to share their private information regarding regulated banks. Our paper shows that the very same considerations that lead bank regulators to make different policy choices render the information-sharing assumption invalid. We further show that this result has important implications for the institutional allocation of lending of last resort, deposit insurance, and bank supervision.

Suggested Citation

  • Kahn, Charles M. & Santos, Joao A. C., 2006. "Who Should Act as Lender of Last Resort? An Incomplete Contracts Model: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1111-1118, June.
  • Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:4:p:1111-1118
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    File URL: http://dx.doi.org/10.1353/mcb.2006.0057
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    Citations

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    Cited by:

    1. Pierre C. Boyer & Jorge Ponce, 2010. "Central banks, regulatory capture and banking supervision reform," Documentos de trabajo 2010003, Banco Central del Uruguay.
    2. Ponce, Jorge & Rennert, Marc, 2015. "Systemic banks and the lender of last resort," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 286-297.
    3. Xavier Freixas, 2009. "Monetary policy in a systemic crisis," Oxford Review of Economic Policy, Oxford University Press, vol. 25(4), pages 630-653, Winter.
    4. Hauck, Achim & Vollmer, Uwe, 2013. "Emergency liquidity provision to public banks: Rules versus discretion," European Journal of Political Economy, Elsevier, vol. 32(C), pages 193-204.
    5. Ponce, Jorge, 2010. "Lender of last resort policy: What reforms are necessary?," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 188-206, April.
    6. Plosser, Matthew & Santos, Joao A. C., 2014. "Banks' incentives and the quality of internal risk models," Staff Reports 704, Federal Reserve Bank of New York.
    7. Ralf Bebenroth & Diemo Dietrich & Uwe Vollmer, 2009. "Bank regulation and supervision in bank-dominated financial systems: a comparison between Japan and Germany," European Journal of Law and Economics, Springer, vol. 27(2), pages 177-209, April.
    8. Marco A Espinosa-Vega & Rafael Matta & Charles M. Kahn & Juan Sole, 2011. "Systemic Risk and Optimal Regulatory Architecture," IMF Working Papers 11/193, International Monetary Fund.
    9. Xavier Freixas & Bruno Maria Parigi, 2008. "Lender of Last Resort and Bank Closure Policy," CESifo Working Paper Series 2286, CESifo Group Munich.
    10. Pierre C. Boyer & Jorge Ponce, 2011. "Central Banks and Banking Supervision Reform," Chapters,in: Handbook of Central Banking, Financial Regulation and Supervision, chapter 6 Edward Elgar Publishing.
    11. Matej Marinc & Razvan Vlahu, 2011. "The Economic Perspective of Bank Bankruptcy Law," DNB Working Papers 310, Netherlands Central Bank, Research Department.
    12. Boyer, Pierre C. & Ponce, Jorge, 2012. "Regulatory capture and banking supervision reform," Journal of Financial Stability, Elsevier, vol. 8(3), pages 206-217.

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