Are banks excessively monitored?
Insuffucient monitoring by depositors, and thus a lack of market discipline, are often seen as a typical feature of banks. We show that the opposite may be the case. Banks, defined as firms that borrow from a large number of partially uninformed investors, have a tendency to be excessively monitored by informed investors. This is shown in a model of intermediation in which heterogenous investors choose whether they want to monitor the intermediary or not. We also find that banks finance is preferable to non-bank finance when assets are relatively safe or opaque. The model which is set in a banking context may be applicable to a wider range of information problems.
|Date of creation:||Nov 2000|
|Date of revision:|
|Contact details of provider:|| Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee|
Phone: ++41 (0)31 780 31 31
Fax: ++41 (0)31 780 31 00
Web page: http://www.szgerzensee.ch/
|Order Information:|| Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Urs W. Birchler, 1999.
"Bankruptcy Priority for Bank Deposits: a Contract Theoretic Explanation,"
00.01, Swiss National Bank, Study Center Gerzensee.
- Birchler, Urs W, 2000. "Bankruptcy Priority for Bank Deposits: A Contract Theoretic Explanation," Review of Financial Studies, Society for Financial Studies, vol. 13(3), pages 813-40.
- Beth Allen, 2000. "The Future of Microeconomic Theory," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 143-150, Winter.
- Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
- G. G. Garcia, 1999. "Deposit Insurance; A Survey of Actual and Best Practices," IMF Working Papers 99/54, International Monetary Fund.
- Krasa, Stefan & Villamil, Anne P., 1992. "Monitoring the monitor: An incentive structure for a financial intermediary," Journal of Economic Theory, Elsevier, vol. 57(1), pages 197-221.
- Cukierman, Alex, 1980. "The Effects of Uncertainty on Investment under Risk Neutrality with Endogenous Information," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 462-75, June.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Cheol Park, 2000. "Monitoring and Structure of Debt Contracts," Journal of Finance, American Finance Association, vol. 55(5), pages 2157-2195, October.
- Xu, Bin, 2000. "The Welfare Implications of Costly Monitoring in the Credit Market: A Note," Economic Journal, Royal Economic Society, vol. 110(463), pages 576-80, April.
When requesting a correction, please mention this item's handle: RePEc:szg:worpap:0014. 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: (library)
If references are entirely missing, you can add them using this form.