An incentive-based theory of bank regulation

The Economics of Bank Regulation

“…An important paper on this subject is Campbell, Chan, and Marino [1992] wbich analyzes regulatory incentives to expend monitoring effort, given regulatory effort aversion. This paper shows that regulatory monitoring and capital requirements are partial substitutes in curbing bank asset risk.…”

Allocating bank regulatory powers: Lender of last resort, deposit insurance and supervision

“…11 An aspect absent from this literature is the interaction between regulators themselves because it usually assumes that both regulations are managed by a single agency or di®erent agencies acting in perfect synchrony. On the other hand, studies such as Campbell, Chan and Marino (1992), which analyzes supervisors' incentives to monitor banks, and Mailath and Mester (1994), which analyzes the DI's incentives to close banks, assume a single regulator. 12 Repullo (2000) considers the interaction between regulators by studying the optimal allocation of the lending of last resort function in an incomplete contract framework.…”

Deposit Insurance, Bank Incentives, and the Design of Regulatory Policy

“…Accordingly, the end-of-period value of a generic investment in a loan or risky security, j i1 , i s g i v en by, 2 For example, see Chan, Greenbaum, and Thakor (1992), Giammarino, Lewis, and Sappington (1993), Kim and Santomero (1988a), John, John, and Senbet (1991), Campbell, Chan, and Marino (1992), and John, Saunders, and Senbet (1995). 3 Campbell, Chan, and Marino (1992) also suggest limitations on incentive-compatible approaches. As individual loans are discrete investments, a bank's loan investment opportunity set is dened to be the set of all possible combinations of the discrete lending opportunities it faces.…”